It's the Underemployed, Stupid!

Last Friday, the Bureau of Labor and Statistics (BLS) reported an unemployment rate of 9.4%. This was a drop from the 9.5% rate of the previous month's report. This is despite the fact that the there was a net increase in the unemployment rolls by 247,000 newly unemployed workers.

The only way you can actually have "more" unemployed in any given month and, yet, have a lowered unemployment rate is to "play" with the total number of workers who are in the available workforce. So, in effect (and so illogically), the BLS is claiming, in last Friday's report, that the workforce grew by some amount of new workers and all those "new" workers "entered" this new, larger workforce pool; bringing their jobs with them. Therefore, the "unemployed" -- though higher in their amount -- actually represented a smaller portion of the total workforce and, consequently, the unemployment rate went down. That highly improbable fact was completely swallowed by our national media; without question.

What most people don't really understand is that an agency like the Bureau of Labor and Statistics doesn't really know what the "true" unemployment rate actually is. They don't actually interview the 300 million or more people in the country each month to determine who is "working"; or, who is retired from the workforce; and, who his employed versus looking for work. Instead, they use both "samples" and "assumptions" to come up with the unemployment rate. Any changes, in either the sample data or their assumptions, can have a big impact on their resulting calculations of the unemployment rate. And, that is what happened, conveniently for the Obama Administration, last Friday.

All you had to do is look at the weekly "Jobless Claims" number that was reported the day before the Unemployment Report was released on Friday to know that the unemployment situation isn't really getting any better. In that "jobless claims" report of Thursday, the number of people losing their jobs was surprising less than expected; but, the back-story of that report was that more people continued to claim unemployment benefits; showing that the job market is very tight and that people who are losing their jobs are still less likely to get rehired. In fact, the amount of people still claiming benefits jumped by 69,000 workers from the previous week (Click to See Full Story).

The problem with all these reports is that they "don't" include the accounting for what most economists call the "underemployed" (Click to See Full Story). While the Feds try to overcome this short sightedness by conducting what they call the "household survey", they are generally way off the mark.

A good example of the underemployed is my brother. He is a fine arts artist. His gallery sales are down to trickle, at best, and he is now living off of his savings. To the Federal government, he is not consider to be unemployed. The same is true with my brother-in-law. He and his wife have a plant rental and placement business. He lost his very last commercial account a couple of months ago. He has no income from his business and the Federal government still considers him to be employed. A farmer who has no income because of any complete crop damage is also "not" considered to be unemployed. In addition to those people who have small businesses that are, in essence, out of business, there are a number of people who have just given up it trying to find a job. These are the people who have exhausted their unemployment benefits and just can't find a job anywhere. Some of them are our new homeless that are now inhabitants of those "tent cities" that seem to be cropping up all over the country. Generally speaking, these are people who have both lost their jobs and lost their homes to foreclosure.

The fact is that the unemployment rate is a number that can be tweaked; politically, if necessary, and without actually being accused of lying. It's all about the assumptions; and, like many have said before this, just look at the first three letters of the word assumptions! Most economists, now, think that the true unemployment rate is upwards of 15%. In fact, the best source of information about what "might" be the true unemployment rate comes from this website of economist John Williams (Click to See Full Story). Note: Be sure to look at his "Disclaimer" statement that can be linked-to at the bottom of this report.

Politically, the headline that the unemployment rate fell was just what Team Obama needed to tout that their Stimulus Plan and all the other measures that they have taken are working. However, I believe this to be a political ruse. Other reports, like Personal Income and Spending (Click to View Charts) and Consumer Credit (Click to View Charts and Graphs), say just the opposite; and those numbers are falling off a cliff. To top that, Consumer Confidence, as reported by the independent and non-government Conference Board, has fallen over the last two months as people retreat from the optimism about this economy and increase their concerns over the ineffectiveness of Obama's Stimulus Program.

Never forget this old saying about statistics: "There are lies; damn lies; and, then, there are statistics!" I would be careful of any government agency, like the Bureau of Labor and Statistics, that proudly bears the word "statistics" in its name. After all, it reports up through and to the President, President Obama; who desperately needs some good news about the economy to stop his falling in the polls and to ram through his Health Care Reform and Cap and Trade Bills.