As bad as the unemployment numbers seemed on Monday, the deeper numbers are likely a good bit worse.
The most commonly reported number is actually only one of six measurements. It’s called the U-3, and it excludes a number of unemployed workers – such as discouraged workers, those who have found part-time work only as a stopgap, and marginally attached workers. (Marginally attached workers are those who have temporarily stopped searching, for whatever reason.)
The U-3, the official unemployment rate, currently stands at 9.8%. It’s likely to rise with the release of October’s numbers later this week, but by how much, we don’t yet know for sure.
However, we can be sure that the U-6 unemployment rate will remain well ahead of the U-3. The U-6 – which includes many segments of the unemployed that the U-3 misses – currently stands at 17%.
When comparing Monday’s numbers to numbers from the past, the U-6 is a more useful measure.
But even beyond the U-6, economist John Williams, a Dartmouth MBA graduate and consultant to Fortune 500 companies, attempts to estimate true unemployment numbers even more deeply.
By uncovering the numbers of discouraged workers “defined away” during the Clinton administration, Williams believes the actual number of unemployed currently is nearing 22%.
Barring a major surprise, all these numbers – the U-3, the U-6, and the Williams’ estimated “true” unemployment – will rise with October’s numbers. That makes for bad news for the U.S. economy.
Bloomberg has uncovered a number of economists pessimistic about unemployment rates, and what they’ll mean for the country’s recovery.
Rising unemployment “could be enough to push the country back into recession,” Gus Fraucher, director of Macroeconomic Research at Moody’s Economy.com, told Bloomberg..
Looking in the other direction, David Greenlaw, chief fixed-income economist at Morgan Stanley, said, “We’ve got a gradual recovery in the overall economy, but it’s not vigorous enough to knock down the unemployment rate by much.”
Further, most economists believe that consumer spending numbers are likely to tumble in the next few months, as government stimulus programs run out. The example often cited is Cash for Clunkers – while car sales were up markedly during the program, they’ve fallen by 35% in the past month.
Further depressing matters, with unemployment numbers likely worse than the official stats, many projections for consumer spending are likely too high. Given that consumer spending is currently 70% of the U.S. GDP, this is a very serious matter.
Simply put, if the economic recovery is to continue under its own steam, the country needs to see meaningful job creation – not just slowing job losses. Unless that happens, and top-line revenues begin to grow again at businesses, a double-dip recession remains a strong possibility.
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