Today the U.S. Bureau of Labor Statistics came out with a jobs report that said U3 Unemployment was now at 6.6% – almost pre-recession levels. Of course we know that’s not valid on its face by now. Even the Fed, who targeted 6.5% as a benchmark for Quantitative Easing for the last 5 years, is backing away from the very benchmark that they created.
But Ben Berkowitz at CNBC had an interesting take. He posed the theory (with a comparative chart) that U6, which had always correlated with U3 was now breaking away from the U3 correlation. He says the trend is more “volatile.”
So to figure out if Berkowitz was on to something, I ran a ratio (instead of a correlation) of U6 and U3. As a complete monetary cynic who has shouted from the rooftops that U3 doesn’t measure anything anymore, the results shocked even me.
We know that U6 INCLUDES U3 – the basic unemployment rate. So with that in mind, what we see is that for every percentage of unemployment, there’s another full percent of underemployed, or marginally employed (temporary). That’s a 1.9:1 ratio percentage points.
Is it more “volatile?” Well, not really. That ratio of people with jobs that are in “insecure” jobs is pretty steadily going upward. It’s not that marginal or underemployed workers are more (or less) marginal or underemployed; it’s that there are more OF them; more than in any other time since U6 has been tracked. And therein lies the other problems with the jobs report which doesn’t report: With all of these people working now, they should all be buying stuff now, right? Not so fast!
- Retail sales and jobs are down
- Auto sales are down
- Durable good sales are down
- Manufacturing orders are down
- Home sales are down
A colleague asked me if it was going to take people rioting in the streets to get the Fed (and Congress) to pay attention to the real economic picture? Maybe – but if people riot in the streets for jobs and food, it’s going to be with a 5% unemployment rate – from the “working” unemployed.