Friday, June 5, 2009

Real May Unemployment Rate Reaches 13.4%

For newer readers I do an in depth post on the "real unemployment rate" a few times a year - the last version was in [Apr 3, 2009: Real March Unemployment Rate Reaches 12.5%] so you can see definitions and methodology for 'reality' there.

Most other months I just do a Cliff Notes version similar to what I did last month [May 8, 2009: Real April Unemployment Rate Reaches 12.9%] Let me reiterate as I always do in these posts, this number really only matters to economists or those seeking truth. To market participants it's more or less a game of cat and mouse and as long as things are in line with expectations DIRECTIONALLY, if not on an ABSOLUTE valuation - all is well in the world.

I wrote last month

From here on out as the federal government jobs start coming hot and heavy and the economy stabilizes I'd expect some months of 300K to 400K of job losses and then we'll improve to 100K to 200K a month later in the year.

I predicted in 2008 we'd see a 10% "government reported" unemployment rate which would mean in real terms (how the government used to measure things before they realized we could not handle the truth) 15% unemployment rate by the time this is all said and done, and I stick to it.

I thought this month we'd report closer to 500K (high 400Ks at best) per government reporting, 300K print surprised me... as it did everyone else. But I stick with what I wrote above...

For a Cliff Notes Version of why I say the Unemployment Rate is 13.4% (roughly) since the early 90s changes have been made to record keeping methodology - which skew the numbers higher than how they were reported before that time frame. So comparing numbers in the 90s / 00s to the 70s / 80s is not apples to apples. The closest approximation I can get to the old methodology is adding the "reported" rate (9.4% this month) to the delta between the broadest rate (U-6) and the "people who have been explained away over the years by government jiggering of report". This can be seen in the chart below (the difference between the blue and gray lines) and has been about 4% the past few months. So 9.4% + 4% (the delta) = 13.4%. Perhaps its 13.2%... perhaps its 13.8% - the exact number is not the issue... the fact we are off by this magnitude since we've made changes is.

Some will say the gray line U-6 aka the broadest measure of unemployment) is the true rate but a portion of those people are working, but only part time although they wish for full time work. So they would not of been counted in the 70s or 80s either... they are just people underemployed. I don't count them in my "unemployment rate" as I am trying to simply quantify what we'd be reporting if it was 1982 and we still lived in a world of reality, rather than acting as ostriches in a "we can't handle the truth" world.


So from there here is the top line look: 345,000 jobs lost with an astounding upwards revision to the previous 2 months of 82,000. I say astounding because almost every economic report the past 6-8 months has been number X and then revised down to Y 30 days later (of course the stock market jumps on the X number as "better than expected"). This is the first time in ages I can remember it going the other way.

Now keep in mind we are spending nearly $800B to create "or save" 3.5 million jobs per the stimulus plan so we better get at least 1 million jobs out of it! You know, $800K per job! :)

Here are the lurid details, I am going to list the last 3 months (May, April, March) so you can see the progress where applicable

Government presented unemployment rate
  1. 9.4%
  2. 8.9%
  3. 8.5%
The unemployment rate per my best estimation (should be very close) as presented pre early 1990s adjustment i.e. how the data was presented in the 80s, 70s, 60s et al
  1. 13.4%
  2. 12.9%
  3. 12.5%
The broadest measure of unemployment and underemployment (people unable to find full time work or at jobs outside their field, et al) (U-6)
  1. 16.4%
  2. 15.8%
  3. 15.6%
Now 2 places we add jobs almost every month are government and healthcare. Which also are the 2 entitlement programs that will eventually bankrupt the country - but for now we're just happy we can create jobs there... because the private sector is unable to. Here is the pattern in government jobs - remember last month 66,000 census jobs were created while in March was the first time I can recall the # of government jobs decreasing. Considering our states are in complete budget disasters it is remarkable the job gains in government just keep on going or at worst 'flattish'.
  1. -7,000
  2. +72,000
  3. -5,000
Private sector job losses (this includes "gains" from the birth / death model)
  1. Can't find it this month yet, will come back to fill this in
  2. 611,000
  3. 693,000
The average work week actually got worse... somehow, from the lows the past two months, which were records. So as a median... people who are working, are working at below 80% of the "normal workweek"
  1. 33.1 hours
  2. 33.2 hours
  3. 33.2 hours
How are their wages doing? They continue to suffer, and continue to go in the wrong direction - in March we were at least at +0.2% gain, now this is the second month at +0.1%. Remember multiply this number by 12 to get an annual 'wage inflation' 0.2% = 2.4% annual, 0.1% = 1.2%. Inflation, brought on by the Federal Reserve will scar the American consumer.
  1. 0.1%
  2. 0.1%
  3. 0.2%
Now one of my favorite statistics... the birth / death model which in an estimate of businesses too small to measure, so the government guesses - has been positive almost every month during this entire recession. :) Apparently thousands upon thousands of small business are sprouting across America creating a bevy of jobs
  1. +220,000
  2. +226,000
  3. +114,000
I want to show you those 3 in series because as the nation loses millions of jobs, the government is saying businesses too small to measure created half a million jobs in the past 3 months. Which is why I say even my 13.4% rate is conservative. For example the government 'guesses' that 100,000 construction jobs have been created the past 3 months (fully 1/5th of the birth death model gains) in businesses too small to measure. I'll let you decide for yourself what fantasy world you want to believe.

Here is a new statistic I am just beginning to track
  • The number of people who've been out of work longer than six months rose by 268,000 to stand at 3.9 million. Representing 2.5% of the workforce, this figure marks the highest seen since 1983.
To end, the average hourly wage in America is now $18.54 - roughly $38,500. (before taxes) Meaning half the country is below that, and half above. Most readers I am sure are above... but try to imagine living your life in this cost of living environment on $20-$30K (before taxes) where 1/3rd of the country lives. A basic roof over your head in many cities is say $700/mo = $8400 a year. One can do the math from there... Walmart Nation is only growing.

So in reality this is an improvement (as we expected) from the hell that was last winter. If I add back "reality" to what the government says, we improved from losing about a million jobs a month during the worst of it, to losing about 600K this month. To put this in perspective, we lost about 150,000 jobs a month on average (with some spikes higher but nowhere near half a million) during the recession at the beginning of the decade. Worked hours continue to falter, and wages stagnate. Inflation adjusted wages continue to go backwards... after stagnating the entire decade.

I continue to expect this report to improve and then a lot of joblessness in America to persist throughout 2010. There are no real job drivers to create millions of jobs as the housing boom did in mid decade. So instead we await China to save us, and our government to create new jobs for us - more costs for our grandchildren to bear. The next job wave will come from the bubbles the Federal Reserve is in process of creating today. And we'll continue the bubble bust economy from here til ?

Let me conclude with a green shoot - as more Americans lose their jobs and stay unemployed, this reduces the costs in corporate America. More work is shuffled to the remaining workers (we call these productivity gains) and corporate profits can go up. Hence CEO bonuses can burst and then we can start talking "trickle down economics" again - although it's failed for a decade. So high 5 a CEO as you walk by... corporate profits should be surging from here. S&P 1200 with gas $4 and true unemployment 16% should be a powerful combination.

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