The Real Unemployment Rate

Yesterday the US Bureau of Labor Statistics (BLS) reported in its monthly Employment Situation that the unemployment rate was little unchanged from the prior month at 6.2%, while nonfarm payroll employment rose by 379K. When you see that the number of people employed went up, but the unemployment rate was flat, it tells you that we need to dig a little deeper to understand why the overall unemployment rate did not decline. Well, it has to do with the way that the unemployment rate is calculated: it is the number of people unemployed as a percentage of the labor force. If we are told that the numerator decreased and that the overall percentage (i.e. unemployment rate) stayed flat, that means that the denominator must have decrease in order for that to occur. 

When you start digging in about how the labor force number is calculated you realize that there are a lot of assumptions being made, which may or may not hold water in any given time period. That is why my prefer unemployment metric to monitor is the so-called U-6 Unemployment Rate, also published by the BLS. The U-6 Unemployment Rate counts everyone that is practically looking for work, or has a desire to work more than what is currently available (e.g. someone working part-time but wants to work full-time). For the month of February, as the previous month, the U-6 Unemployment Rate stood at 11.1%. By way of comparison, immediately prior to the government shutdowns, this rate was hovering between 7-8%. See graph below for a broader trend view.

What does this all mean? To put it simply any employment gains being reported are not necessarily gain in new jobs, but rather recovering what was lost. From an employment perspective, we are still at a net loss when compared to February 2020.