Persons “Marginally Attached to the Labor Force”

Early last month, we suggested that it would be more instructive if the media began reporting U3 and U6 Unemployment together. (Unemployment Reporting: A Modest Proposal (U3 + U6)

Northern Trust’s Asha Bangalore appears to have been thinking along the same lines, for her NFP post-mortem includes the following:

Household Survey – The BLS also publishes information about marginally attached persons to the labor force. These folks are either discouraged workers or they want to work and are available but are not working and have looked for work in the recent past.  If we sum the number officially unemployed, the number of marginally attached workers, and the number working part-time for economic reasons we obtain a more comprehensive measure of unemployment. This broader measure of unemployment rose to 9.9% in June (see chart 1) which is significantly higher than the 8.3% rate reported in June 2007.

Note how in the accompanying chart the typical (U3) as well as broader (U6) Unemployment measures are included. The trends are remarkably similar, but the scale on the left and right margins are quite different.

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Mystery resolved: Household Survey, U3/U6 Unemployment

See also BLS: Table A-12.  Alternative measures of labor underutilization

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Herein lies one of the keys to of our ongoing discussions as to why the Public is so much gloomier than the Pundits. The pontificators and talking heads are looking at the official U3 scale at left, while the public in the real world feels the U6 scale at right.

A second chart similarly helps to reveal some of the differences between perception and reality: The Birth Death adjustment:

The Birth/Death adjustment factor has given an artificial boost to nonfarm payrolls as the economy has entered a recessionary phase.  The inclusion of the birth/death adjustment process (the adjustment is a consideration of payroll changes occurring as small businesses are established and destroyed each month) has resulted in a decline of 167,000 seasonally unadjusted payroll jobs in the twelve months ended June 2008.  Excluding the birth/death adjustment factor, payrolls have dropped 1.019 million in the same twelve-month period.

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Non Farm Payroll, with and without Birth/Death Adjustment

See also CES Net Birth/Death Model.

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Once again, note how in the accompanying chart shows very parallel paths — but with different results. The hypothesized job creation of the B/D model additions serves to makes things look rosier than the  tax receipt based CES measure. The trends are remarkably
similar, but the net results diverge.

The chasm between the fluorescent light crowd and the real world is clearly revealed in both of these charts . . .

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Previously:
Are We Too Gloomy? (June 2008)
http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html

Pervasive Pollyannas of Prosperity (July 2008)
http://bigpicture.typepad.com/comments/2008/07/more-on-the-pub.html

Source:
June 2008 Employment Situation

Asha Bangalore
Northern Trust, July 03, 2008
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http://tinyurl.com/6x73rn

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