For example, a quick glance at the headline unemployment numbers published Friday show things are moving in the right direction. The unemployment rate in August dropped to 7.3 percent…all the way from 7.4 percent in July. Not bad.
But, unfortunately, when you scratch below the surface of the Labor Department report a gigantic omission comes into view. In particular, the increasing part of the working age population that has been disappeared from the labor force because they’ve stopped looking for jobs. Just in August alone, 516,000 American workers were dropped out of the labor force, which bumps up the total number of working age Americans who are not in the labor force to almost 90.5 million.
By subtracting discouraged workers out of the numerator in the unemployment rate equation, the Labor Department can show a decline in the unemployment rate. Obviously, that’s the goal of a government statistician. Never mind it took smoke and mirrors to achieve.
Despite the number crunchers best efforts, they can’t change the fact that the U.S. economy now has its lowest labor force participation rate in 35 years. But where did the discouraged workers all go? Certainly, they didn’t really disappear from the face of the earth.
The Real Unemployment Rate
“The biggest drop-off has come among young workers,” found author Rick Newman. “The recession and subsequent weak recovery have cut sharply into opportunities for entry-level workers, in virtually all industries. Some simply can’t find work. Others have chosen to go to college or graduate school instead of looking for a job.”
Regrettably, it won’t be until the economy really starts growing that entry level workers will find jobs. Then it will take more time for entry level workers to develop practical skills and advance their careers. Some young adults may never get past the stunting their careers have already suffered.
In the meantime, young workers have limited options. Through no fault of their own many will continue to live at home and struggle to pay off massive amounts of student load debt. But that’s not all…
In addition to what wasn’t included in the unemployment report – i.e. workers who’ve given up looking for jobs – what was reported was nothing short of a grand disappointment. Only 169,000 new jobs were created in August. What’s more, the jobs number for July was massively revised down…from 162,000 to 104,000. Still the Labor Department puts the unemployment rate at 7.3 percent.
By comparison, John Williams of Shadow Government Statistics marks the real unemployment rate at 23.3 percent. Williams’ calculates unemployment using pre-1994 methods, before discouraged workers were disappeared out of the unemployment rate. What number you believe is up to you…we’re simply providing information for your consideration.
The Economic Recovery that Never Was
Regardless, the economy seems to be stuck in first gear…without the momentum to do much more than just bump along down the road. This has been the case since the economy cracked in late 2007. Since then, aside from brief fits and starts, the economy’s never been able to gain real traction.
No doubt, we’re ready for a real economic boom. The country could use one. And the stock market’s been anticipating one for several years. Yet, still, it hasn’t arrived.
Nonetheless, this hasn’t stopped the stock market from going up. Who cares if unemployment stinks if the S&P 500’s up 17 percent year to date? However, that may be about to change.
The main source of the stock market’s magnificent run up has been cheap credit from the Federal Reserve. Obviously, some of the Fed’s quantitative easing money made it into the stock market. Though after reeling out more and more line over the last five years the Fed may soon start to reel it back in.
Without $85 billion in Fed purchases each month, 10 Year Treasury yields are bound to rise. Higher yields will lead to higher borrowing costs. Higher borrowing costs will lead to lower asset prices…including stocks.
When stock prices fall again there will be no disagreement. We are living in the economic recovery that never was. For now, however, people can sleep well. The S&P 500 rose 1 percent yesterday…
Caveat emptor – Let the buyer beware.
for Economic Prism