The reporter on NPR breathlessly gushed  about how the unemployment rate fell to 7.7 percent.

What a great story!

They then cut to someone who attibuted the fall in the unemployment rate to ‘jobs picking up in construction.’

(Around 48,000 according to BLS)

Don’t get me wrong, I agree that a gain of 236,000 jobs in February is a significant improvement over the paltry 119,000 reported in January.

But it is nowhere  near the 363,000 needed each month to bring our official unemployment rate back down into the neighborhood of 6 percent.

What the reporters are not explaining to you is that in February,  the adult population grew buy 165,000, yet the labor force actually decreased 130,0000 as 295,000 additional adults chose not to look for work.

Over a  hundred thousand more adults fell out of the labor force in February than found jobs!

LABOR FORCE PARTICIPATION RATE FEB 2013

Jobs haven't even begun to recover. This is the real unemployment story.
Jobs haven’t even begun to recover. This is the real unemployment story.

What does this mean?

It means that the real unemployment rate U-6 is 14.3 %

14.3 percent is the real number for total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. Source- Bureau of Labor Statistics.

So that 7.7 % figure the breathless news reporters are giving you is wrong.

The reporters are understating by about 50% the actual unemployment rate.

7.7 percent is 54 percent of 14.2 percent.

46% is a fairly large margin of error or “understatement.”

There is hope.

There are jobs for people with skills in advanced manufacturing.

Here is a link to a quick video where I show a list of job openings posted at Cuyahoga Community College Advanced Workforce Center.

If you can take two semesters of skills training at a local community college, you could find yourself working in advanced manufacturing by the second semester.

Labor Participation Rate Graph

Professor Peter Morici of University of Maryland contributed some sensemaking to this post.

Guest Post by Don Ake.

“The unique situations created by the Great Recession have rendered some traditional economic indicators unreliable.  And I believe that the indicator that has been impacted the most is the Unemployment Rate (U-3) reported by the U.S. Government.”

Don Ake is an MBA and adjunct professor and blogger over at Model T Stock Trends. Don follows the Transportation sector as a leading indicator for the economy and investing.

I find his down home charm and easy to understand explanations of economic arcana to be both informative and amusing. Here’s the rest of his post:

” This post was initially supposed to be an in depth analysis of the current (U-3) Unemployment Rate. Soon after starting my research, I found myself looking at a large pile of goo (if you are unemployed you may substitute “poo” for “goo” or probably a much stronger term).  There have been several articles recently about why the Unemployment Rate is not an accurate measurement of this labor market.  People are constantly trying to adjust the rate based on a single factor.  However there are many factors impacting the job market and these factors are very difficult to measure.

U-3 unemployment rate is a gooey indicator according to Don Ake.
U-3 unemployment rate is a gooey indicator according to Don Ake.
“Sure, you can still calculate the Unemployment Rate percentage, but it is now just a statistic. It is not an accurate indicator of the job market.  It is useless to put it on a historical chart.  The recessions of the past occurred primarily in a “blue-collar” labor force.  The recession hit, workers were laid-off.  The recovery begins and people returned to work, often at their previous jobs. But the Great Recession hit all workers and created some dynamics that are very different.

“The Unemployment Rate is greatly impacted by the number of people actively looking for work (the labor participation rate).  Many people have stopped looking for work, but for many different reasons.  For example, Fred the Engineer, age 59, was downsized from his job after 30 years with his company.  In previous recessions layoffs were based on seniority, but in the Great Recession they were based on salary.  Fred looked for a job, but nobody needs an aging engineer in a slow economy, so after exhausting his severance and unemployment benefits, he decides to retire at age 62.  He is not counted as “unemployed”, but he is a“forced” retiree and would gladly be working if a job were available.

“The labor participation rate is being impacted by these “forced retirees”, people going on “disability” due to the more lenient government standards, the discouraged workers who have temporarily stopped looking due to the tepid job market.  There are also“mismatched workers” whose jobs were eliminated by new technology and who lack the skills to function in the new economy. If these people are younger, they may drop out of the labor force to be reeducated, if they are older, they often become the long-term unemployed.  And of course you have the “benefit riders”that ride their benefits out to the end, before seriously looking for work.

“The great majority of unemployed people are actively searching for work and hate being without a job.  However, in 2011 a construction worker told me he wasn’t really seeking work because he was on the “Obama Plan” and was enjoying his extended unemployment benefits. Miraculously, he found a new job just weeks after his benefits ran out.  So yes, it is true as many others have pointed out: If you pay people to be unemployed, you get more unemployed people.

“Another factor that is difficult to measure is the thousands of college graduates of the last five years who cannot find jobs in their field of study.  They either have no job or are woefully “under-employed” which may mean a job in fast food.  The underemployed (which aren’t accurately measured) also include the “Fred the Engineers” who are not old or wealthy enough to retire and are working full time at the local telemarking firm.  It is taking some professionals longer than four years to return to work in their field.

Since the Unemployment Rate is currently of marginal value, we are left with the monthly jobs reports (from the government and ADP).  And this measures the number of jobs creted, not the quality of these jobs. Replacing a manufacturing job with a call center job is not an even swap.

“The latest government report said 155,000 jobs were created in December.  This rate of job growth is woefully inadequate to provide for the millions of people seeking work (or better work).  I am hearing about more layoffs and hiring freezes from my local contacts. And the current plan for creating more jobs is“there is no plan”.

“We need more precise information to better gauge and track the employment/unemployment situation. Employment surveys need to ask people the reason they are not seeking employment, if they would work if a job was available, and whether they are“underemployed” if they have a job.  There is an opportunity here for a university or survey firm to create a new index. Hey, that would even create a few more jobs!”

“Convincing millions of Americans they don’t want a job or compelling desperate workers to settle for part time work has been the Obama Administration’s most effective jobs program.”  – Peter Morici

Adding to the deficit to pay for it is yet another issue.

The economy added 146,000 jobs in November, up a bit from 138, 000 in October. The Dept. of Labor reported that Unemployment fell to 7.7 percent, largely because 542,000 additional adults chose not to look for work.

In the weakest recovery since the Great Depression, most of the reduction in unemployment from its 10.0 percent peak in October 2009 has been accomplished through a significant drop in the percentage of adults working or looking for work.

Were adult labor-force participation the same today, the unemployment rate would be 9.7 percent.

Hooray! Not really.
Hooray! Not really This is only a small part of the real unemployment picture.

Adding more than 8 million part time workers who can’t find full time work, and discouraged workers no longer looking for work, the unemployment rate becomes 14.4 percent. It rose above 14 percent in the wake of the financial crisis and remains stuck there.

Underemployment is even more onerous.
Underemployment is even more onerous.

Gallup tracks underemployment monthly as well, and the official Labor Dept. figures  seem to be about three percentage points below those of Gallup.

Hmmmm?

Graphs courtesy of Policymic

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland School, and a widely published columnist.

Why don’t things seem better- the news says the unemployment rate fell to 8.3 per cent?

This line only shows the folks counted in U-3...

Photo

The unemployment rate they talk about in the press is the U-3 rate. The unemployment rate that the people in the country are really feeling is called the U-6 rate.

The U-6 rate includes the unemployed, the marginally attached, and persons who are actually employed but who work fewer hours than they would like.

While that  8% rate may sound like a real improvement,  the fact is that in human terms, not filtered through the  rose-colored lens of policy wonks or reporter-speak, the real rate is U-6 or almost double the “official” U-3 rate.

Critical thinking is about recognizing and challenging assumptions. What assumptions are built into the people talking on TV about unemployment?

As this graph shows, one assumption is that they aren’t even talking about darn near half the people who are “unemployed, marginally attached, and persons  who are actually employed but  who work fewer hours than they would like.”

How about that unemployment rate?

Graph