Some Inconvenient Facts (About Unemployment)

I was fascinated by an article in this morning's local paper about how the economy was in a "virtuous cycle," and that 32 economists who were polled by the AP expect unemployment to drop below 8% by election day. This is, no doubt, cause for rejoicing at the White House, where the fondest dream is to have the reported rate below 8% by election day. But here are some inconvenient facts:

As CNBC recently reported, although 115,000 jobs were added in April, the total employment level actually dropped by 169,000. In other words, more jobs were lost than were created. How, then, did the unemployment level fall from 8.2% to 8.1%? Because another 342,000 people gave up and stopped looking for jobs, which means they are no longer counted as part of the "U-3" unemployment rate, which is the one that is always reported. The labor force participation rate fell to 63.6%, which is a 30-year low. The "Persons Not in Labor Force" number has risen to over 88 million. That's up roughly 8 million people since President Obama took office, and the trend shows no sign of leveling off.

The U-3 unemployment rate has now been above 8% for the longest continuous period of time since the Great Depression. But it would be even worse if we still counted those people who have given up and stopped looking for work. As zerohedge.com points out, government forecasting agencies, including the CBO, assume that the labor force grows by about 90,000 people every month as the US population continues to increase. Yet the U-3 number that is constantly being reported is based on an ever-shrinking labor force. The "U-6" unemployment rate, which includes people who are neither working nor looking for work - but would like to work and have looked for work sometime in the last 12 months, and also people who would like a full-time job but have had to settle for part-time work, is at about 14.5%.

Personally, I think those 32 economists were correct, and that the reported U-3 unemployment rate will be below 8% by election day...but it will not be because of economic growth and job creation - it will be because the Obama Administration will continue to lower the labor force participation number until they can report the number they want. As the old saying goes, "Figures don't lie, but liars figure."