Is the Actual Unemployment Rate 3.7% or Is It 7 Times That Number?

The unemployment rate fell to a 49 year low as announced last Friday. It fell to 3.7%.

Is the Actual Unemployment Rate 3.7% or Is It 7 Times That Number?

The unemployment rate fell to a 49 year low as announced last Friday. It fell to 3.7%. From a political soundbite standpoint, it doesn't get any better than that. After all, mid-terms are coming up and multi-decade lows on the unemployment rate mean strength, right?

The Department of Labor reports what is called the U-3 employment rate. There are 6 unemployment rates. The U-3 is the reported unemployment rate and is far from accurate because it is so narrow. However, for whatever political reason, that measurement has always been reported. The U-6, considered the most broad look at employment, counts discouraged workers and those who are working part-time because they can't get full time work. It currently stands at 7.5%. The big difference between the U-3 and the U-6 are people who fall out of the system and are not counted as unemployed even though they are to some degree.

Shadowstats.com takes the economic numbers and attempts to publish the most accurate number - you know something that is not manipulated? Here is their report:

There are a few takeaways from this chart. First, the obvious, the unemployment as calculated by Shadowstats.com is around 22%. Since 2010, the U-3 and U-6 numbers have decreased dramatically while the ShadowStats number is basically at the same place. Second, even if shadowstats.com is wrong and they are off, 22% is a far cry from 3.7%. Let's say they are off by 10%. 12% is much worst than 3.7%. In fact, at the height of the great recession, the highest the U-3 unemployment rate rose to was 10%.

Add in the fact that roughly 48% of jobs created this year are based on government estimates and it makes you wonder what is really happening behind the iron curtain of politics.

So, is Washington painting an unrealistic picture of something that is not really happening? I know that is a shocking notion (please note the sarcasm) Keep in mind that many decisions are made off of those numbers. It could end up being problematic when decisions on interest rates (for example )based on a strong labor base come crashing down because there wasn't the strength there that they hoped.

There in lies the bigger problems with optics. The use of optics in politics have been utilized for decades. Most of the time optics or broadening the truth does not blow up. Today with us facing so many unprecedented scenarios, the risk of using optics has grown substantially.

The moral of the story - Be careful making investment decisions on risk based on what you are reading.

Bob Brooks is a Financial Adviser who practices in the DFW area. He is also the host of the Prudent Money Radio Show. If you want to contact Bob please call 972-386-0384 and ask to speak to Judy. You can also email her at Judy@prudentmoney.com.

Comments
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atkinsww1
atkinsww1

Thank you for this article. I heard the new number in the news and thought that it just doesn't match what I see/hear from people.

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