Today, when the June unemployment numbers came out, the market probably had mixed feelings. The report said 467,000 jobs were lost, and unemployment had risen to 9.5%. The market expected around 325,000 jobs to be lost and unemployment to rise to 9.6%. The bad news: more jobs were lost than anticipated. The kind of good news: unemployment only increased by 0.1% instead of 0.2%, as anticipated. But that kind of good news does not look so good when discouraged workers are considered.
I dug into the Bureau of Labor Statistics report this morning. If you ever took economics, you might remember that unemployment has a sort of strange definition: it doesn't include discouraged workers. For example, imagine some finance guy who got laid off back in mid-2008. He's been looking for work for a year. There's nothing, so he's given up. He decided to take some of his savings and rent a beach house for the summer. He intends to look for work again in the fall, when he hopes the economy will be a little better. He's not considered part of the labor force, so he's not considered unemployed -- even though he really is.
Deep in the BLS unemployment report, you can find discouraged worker statistics in Table A-12. According to that table, the seasonally adjusted percentage of unemployed workers, including discouraged workers, is 10% for June. That's up from 9.8% in May. As you can see, those numbers are significantly worse -- a half percentage higher than reported unemployment in June. That increase of 0.2% also matches the market's expectation for the increase in unemployment. So much for that kind of good news.
BLS wrote another report specifically addressing discouraged workers (opens up .pdf) a few months back. In it, they included this ugly chart:
(The "marginally attached" data can get tricky, so I won't refer to the top line here.)
As you can see, the worse the recession, the more workers get discouraged. The longer our current recession drags on, the further off the reported unemployment rate will be versus the true number that includes discouraged workers. That also means, once the economy really starts getting better, the unemployment number will unexpectedly jump, because all those discouraged workers will be encouraged to give it another go.
Do the stats show that businesses have cut worker pay, hours, benefits, and other services to preserve cash flow and to try to maintain their skilled workforce? Their people are still employed, but barely. Many small businesses were healthy enough to survive the initial crunch (decent sales, good management and good credit) but may be utilizing cash reserves and lines of credit in an effort to shore up operations long enough to weather the storm. Problem is, this is a big one. I believe we are on the cusp of a "second wave", as this next layer of businesses simply cannot sustain themselves any longer.
I always question how reliable the BLS data is, and if it even provides an accurate window into the true number of actual unemployed people in the U.S. Since this data only measures those who qualify for a government entitlement program, it cannot be relied upon as an actual statistic of head count of unemployed persons. A more reliable indicator would be the U.S. Census data. According to the Census, there are 306,816,642 persons living in the U.S. Divide that by the number of 'Private nonfarm employment, 2006' coming in at 119,917,165 to get a rate of 61% unemployed persons. Of course you would want to factor in children, the elderly, retired persons, independent contractors, persons unaccounted for, or any other exempt segments of the population to get a more accurate figure. But even with all those numbers factored in, 61% is a far cry from 9.5%, or even 10%. Its more likely the BLS public data is 'presented in the best light possible' and kept artifically low, since it is highly political in nature and can instantly make or break careers in Washington.