BLS Unemployment Stats Are Not Working

March 13, 2013

As people give up looking for work, the unemployment rate goes down.

Only in the federal government would that make sense.  Yet the official unemployment rate is reported faithfully by most journalists with little analysis.

Not surprisingly, it was reported as good news last week when the Labor Department announced that the economy created 236,000 new jobs in February, bringing the unemployment rate down to 7.7% -- its lowest level since President Obama took office.

So the Obama strategy of taking everything you own in taxes and regulating small businesses out of existence must be helping the economy, right?

Not so fast.  Depending on how you look at the statistics, the unemployment rate may be as high as 23% -- and climbing.

The U3 Fantasy

Unemployment rates are reported by the U.S. Bureau of Labor Statistics (BLS, but BS would be a more appropriate acronym).  BLS measures unemployment in a variety of ways, but the number that has been reported to the public since the days of the Clinton Administration is called the U3 number.

The U3 number excludes people who have given up looking for work.  If you are a “discouraged” worker and have not looked for work for more than four weeks, you’re no longer considered unemployed.  Conversely, it counts those people who are so desperate, they’ve taken part-time jobs as being employed.

In other words, if you’ve been without a job for more than a year and are collecting recyclable cans to feed your kids, you’re not counted as being unemployed.  Likewise, if you’re a former small business owner who could no longer compete because of government regulation and have taken a job flipping burgers because it’s all you could find, you’re considered to be employed.

In addition to the U3 number, BLS maintains a U6 rate, which includes “discouraged” unemployed workers.  At the end of 2012, when the BLS was publicly reporting an unemployment rate of 7.8%, the U6 rate was 14.4%.

Shadow Statistics

That’s quite a spread, but 14.4% is still much lower than 23%.  Where does that number come from?

A Web site called Shadow Government Statistics claims that if all chronically unemployed workers are included, the real unemployment rate is 23%.  The site was created by Walter J. "John" Williams, a Dartmouth grad who has been a private consulting economist specializing in government economic reporting for 30 years.

Shadow Government Statistics also notes that BLS stats are “seasonally adjusted,” which is one way of saying that the numbers are manipulated for political purposes.  Remember when the unemployment rate magically dropped below 8% just before the election?

The BLS credited the sudden creation of 600,000 part-time jobs for the drop in unemployment.  According to the BLS, “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) rose from 8.0 million in August to 8.6 million in September.  These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.”

Official statistics show that the allegedly improving economy has been generating an average of 177,000 new jobs per month.  By what miracle did the economy come up with 600,000 part-time jobs in September?

As for the 236,000 jobs created in February, it’s important to keep in mind that government statistics are often announced, then “revised” at a later date.  The Labor Department initial reported that 157,000 new jobs were created in January, but revised the number down to 119,000 when it announced the February jobs report.

Even if the unemployment rate really were 7.7%, that’s nothing to get too excited about.  Granted, the Obama Administration inherited a financial crisis, but the unemployment rate before he took office was about 5% and even lower in some years before that.

A rate of 7.7% looks good only when compared with the +9% rate from the early years of the Obama Administration.

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