Is US unemployment data as rosy as it appears?

12th March 2012

Why are unemployment figures so important?

Unlike GDP or inflation, unemployment is the economic indicator that measures real human beings, rather than growth or prices.

After all, having a job isn't just about earning a living or paying taxes – it's about human dignity and self-worth, and these have been suffering during economic turmoil.

The human and social costs of unemployment are well-known. Some include financial hardship, emotional stress, depression, loss of status, shame, sickness and even premature death. Then there is the hopelessness that often leads to rising crime, disorder and social unrest – so it's vital to get these figures under control. London's riots have been partly attributed to rising unemployment, for example.

But is the data as good as it appears?

Mindful Money's economist blogger Shaun Richards thinks not. He says that the catch is that whilst the headline numbers have improved, there have been worrying developments in the underlying breakdown of the numbers as well as issues with the seasonal adjustment used.

He explains on his blog: "The survey organisation Gallup has completed its numbers this week and concludes that the unemployment rate needs to rise to 8.5% to agree with its numbers. Its measure of under-employment or what is called U-6 rose by 0.4% in February. So questions are posed here…Care is needed as the definitions are not the same and the Gallup poll does not have seasonal adjustment."

He adds: "I remain troubled by factors such as the number of people on foodstamps or what is called SNAP. How does its continuing rise fit with an improving economy? The numbers are behind what we will see today but in December we saw a rise of 227,922 to 46,514,238. For perspective,  the count was under 31 million in October 2008 and the trend is both relentless and grim and certainly does not fit with any talk of economic improvement."

What do other experts say?

And anyway, President Obama's former economic adviser said that this seemingly rosy economic figure probably won't last in an ABC news blog.

"I think the main thing that [President Obama] ought to worry anybody is that the growth rate is probably not as sustainable as at high a rate as it's been, so the pace of expansion, which for six months has been pretty impressive, it may just slow down a bit," said Austan Goolsbee.

Goolsbee said he did not think the economy would plunge into a "double dip" recession, but warned that the growth rate would likely slow from 3 percent to 1.5-2 percent. He also said the unemployment rate, which could be vital to Obama's re-election, could spike upward after six months of decreasing rates. 

"As the economy's improving, you're also going to see, as you have the last couple of months, a whole lot of people coming out of the labor force, back into the job market," Goolsbee said. "So the unemployment rate might actually go back up."

And anyway, could it just be down to Baby Boomers?

The Huffington Post argues that growth hasn't been enough for wages to keep pace with inflation, and nor did the unemployment rate actually drop. In fact, the percentage of people in the labour force is still two points lower than it was before the recession began.

It adds that ageing Baby Boomers entering retirement has largely driven down the unemployment rate.

Barclays Capital chief economist Dean Maki says in recent research, according to CNN, that that the unemployment rate will most likely continue to fall to about 7% by the end of 2013 – not so much because workers will decide to return to their job hunt, but because of a flux of ageing Baby Boomers retiring. Maki's take strays from the views of most economists, who've said the rate of joblessness has declined partly because some have given up looking for work until things get better.

So it seems it's not all bright and rosy as Obama would have us believe. What do you think of the headline figures?


More from Mindful Money:

Time to invest in the US with stocks at a two decade low?

US: World can cope without Iran oil

Bernanke: US recovery 'uneven and modest

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