Last week’s unemployment numbers mean that for the third straight year, the U.S. economy has fallen into a spring slump, adding a dismal 69,000 jobs. That number falls short of 90,000, the growth number accepted by the Congressional Budget Office (CBO) and other government agencies required for the labor force to keep pace with the growing population. Accordingly, the unemployment number ticked back up to 8.2 percent, a sure sign that this latest recovery didn’t really have the legs many thought it did. “Friday’s jobs report was the most important in a while,” said New York Times economist David Leonhardt. “And it was terrible.”
The number only confirmed what many saw day to day: the economy is not improving. It’s hard to get a job. It’s hard to get a loan. Prices on essentials like food, gas, higher education, and healthcare continue to climb. But we’ve been adding jobs right? Shouldn’t things be getting better? The unemployment numbers over the last two years seem to suggest as much.
Over the last couple of years, unemployment has steadily dropped towards 8% from a high of 10%. (Bloomberg)
The steady drop paints a rosy picture if only it were accurate. Instead, as it is currently defined, the unemployment number has because a useless barometer for real unemployment, let alone the health of the economy, by the Fed’s own admission.
Its fatal flaw is that it only counts people actively looking for work. Using the widely cited “U3” methodology, if you’ve given up, you’re out of the defined labor force, so the government no longer counts you in their calculations. As such, the falling unemployment number hides a grisly truth: Our labor force is drastically shrinking. Much of the percentage gains over the past few years have been fueled more and more from people quitting the labor force altogether, people who have simply lost hope of ever finding a job.
There is of course also the “U6," a broader gauge of labor underutilization that includes everyone from U3, but adds “marginally attached workers,” which, according to the Wall Street Journal, is are defined as “those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find.” U6 unemployment ticked up to 14.8 percent, up from 14.5 in April.
By itself, the number already paints a bleak picture. Several states already have U6 levels above 20 percent, according to the Bureau of Labor Statistics (BLS) — including California, the ninth largest economy in the world, which clocked in at 22 percent. But these numbers still fail to highlight one of the most worrying symptoms of our current economic woes: long-term employment.
The number of people not participating in the labor force has reached an all time high of nearly 88 million. (ZeroHedge)
Meanwhile, the total number of Americans who have a job in any capacity has dipped below 64 percent, the lowest level since 1981.
Fewer and fewer Americans are working. (IceCap Asset Management)
For all these gains we appear to be making with these magical unemployment numbers, a bitter reality appears, perhaps the most worrying symptom of our current crisis: people aren’t finding stable, long-term jobs.
“What’s unprecedented during this recession is we’ve had a real drop in the labor force,” Keith Hall, former commissioner of the BLS, told FBN. “Something like over 2% of the population has dropped out of the labor force, which is very unusual. That’s unprecedented — that amounts to something like six million people who are out of the labor force, who normally would be in the labor force.”
As the Wall Street Journal noted back in 2009, the average length of unemployment is now higher than it’s ever been since we first started tracking data in 1948 and that “job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.” Last week’s Employment Situation Report revealed that the “long-term” unemployed, those jobless for 27 weeks or longer, was still a stratospheric 5.4 million, or 42.8% of the unemployed.
Long-term unemployment defines the current crisis (CalculatedRisk)
This kind of long-term unemployment isn’t just a dampener on the short-term recovery party, it represents real systemic risk. As Dean Baker and Kevin Hasset of the Center for Economic Policy and the American Enterprise Institute warned recently in the New York Times, “the result is nothing short of a national emergency. Millions of workers have been disconnected from the work force, and possibly even from society. If they are not reconnected, the costs to them and to society will be grim.”
It’s a problem that builds on itself. The longer you’re out of the game, the less chance you ever have of playing again. On the flip side, many of the positions cut by companies are never coming back John Silvia, chief economist at Wells Fargo Securities, explained to Bloomberg:
Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said.
And without jobs, without people actually going back to work, there is no recovery, no matter what the “unemployment” numbers say. In fact, if we take an extrapolation of current trends, using the 12 month trailing averages in those who are employed, unemployed, and, quitting the labor force entirely, we’d actually have negative unemployment in just ten years.
Hurray! 0% unemployment by December 2021! (ZeroHedge)
Unemployment sure is fantastic when no one’s working. If that makes no sense to you then you are not alone. Simply put, the monthly song and dance over unemployment numbers has become increasingly irrelevant. No massaging of the data can hide these simple facts: A ton of people lost their jobs, those jobs aren’t coming back, and most likely many of these people won’t work again, all of which is a terrible drain on the economy. Continuing along this path, things only worsen, no matter what the “unemployment” number is. The government has done little, possibly because there is no easy solution. The transition away from human labor over the last half century means its unclear where new jobs will come from, if any will come at all. Remember Facebook, that new public company worth $100 billion? Yeah, they have only around 3,500 employees. Welcome to the future.
Follow Alec on Twitter: @sfnuop.