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 | Discouraged Americans Stop Looking for Work Posted by Steve Wolfer on 3/05, 3:40pm | |
| This is a well written column on unemployment numbers and the sleight of hand used by the politicians. ------------------------------------------------ by Alan Zafran 03/05/11 - 07:00 AM EST NEW YORK (TheStreet) -- The much ballyhooed February nonfarm payroll report and unemployment figures were released yesterday. Based on the bond- and stock-market reactions to the news (albeit oil-price movements are also clearly impacting current market movements), investors are skeptical, at best, that unemployment is falling quickly enough to sustain a solid U.S. economic recovery. Well, that comment may not be fully capturing investors' disappointment with the report. What has really disheartened investors is the fact that wage growth (hourly earnings) remains unchanged. Meanwhile, food and energy (grocery and gasoline) prices are rapidly escalating. Translation: Consumers' real purchasing power is diminishing. And if consumers must spend more money at Safeway and the Arco station (assuming they've forgiven BP), there's that much less of "consumption" that feeds into the economy. And, oh, by the way, that consumption is roughly 70% of what drives our economy (sorry, pun intended). Whereas the bulls and the politicians will point to the steady, albeit moderate, degree of job improvement, there just simply aren't enough jobs being created quickly enough with any wage increases to meaningfully heal the U.S. economy. Let's hope that changes quickly. Meanwhile, we do have to tip our hat to the bears, who rightfully point out that the official government statistic of an 8.9% unemployment rate (meaningfully down from 9.8% only three months ago) may not be fully capturing the whole labor picture. Why not? Well, let's attribute that to something called the labor force participation rate. You see, the government defines unemployment as those non-military individuals over age 15 who don't have a job, have actively looked for work in the past four weeks, and are currently available for work. The government definition also includes people who were temporarily laid off and are waiting to be called back to that job. But what the government's definition fails to capture is how many Americans (over age 15 and not in the military) have spent countless unsuccessful months looking for work and have finally left the labor force. Specifically, those persons who didn't look for a job in the past four weeks, or those who are so discouraged that they have stopped looking for a job, are not counted as being unemployed. Ironic, isn't it? The longer someone is not working, the less likely they are to be considered unemployed by the government. Go figure. But for purposes of this discussion, bear in mind this simple fact: With fewer persons actively seeking employment, the labor force has shrunk and - voila -- you have a lower unemployment rate, namely 8.9% as of February. Now here's the rub. According to yesterday's report, the labor force participation rate (the number of persons in the labor force divided by the adult civilian population) stands at 64.2%. That is unchanged from the previous month, and it remains at a 25-year low. Forget the "boom times": What if we simply evaluated what the government's unemployment rate would be if the labor force participation rate were to return to its 25-year average of 66.1%? The result: The unemployment rate would be 11.6% -- not 8.9%! And don't even get me started at what is called the "underemployment rate," or U6, which defines "underemployed persons" to include those who aren't working or searching for a job as well as those who are working part-time because they can't find a full-time job. What's that figure? A full 15.9% of Americans! It sure seems like the data coming from the government and, more importantly, reported in major media channels makes the employment situation look a lot better than reality. Hmm, is there some other way to gauge current standards of living for America's disenfranchised? Perhaps a look at the number of Americans on food stamps is a better way to understand how many people can't find gainful employment and are indeed struggling to make ends meet. From December 2009 to December 2010, that number went from just under 39 million to just over 44 million, an increase of 13%. The monthly increase from November 2010 to December 2010 was 1.1% (around 500,000 persons). In other words, more than 1 out of 7 Americans are now on food stamps -- a staggering number. Let's hope that a confluence of positive economic developments quickly surface so that we can find a rapid and sustainable remedy for the millions of Americans who remain mired in the economic haze. And if we don't find a way to build upon the moderate economic strides we've taken since June 2009, we may be faced with an even greater number of Americans soon living off food stamps. | ||
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