This must be the “new normal” everyone’s talking about. Where a cyclical low in the unemployment rate, to the the low 5 percent range, is met with a courtly high stock market and talks of an impending rise in rates. Sure there is a feeling in some pockets of the economy that “things” are much better out there, even though by some measures the labor data is unfortunately, still far from out of the dark.
For example, Q1 U.S. GDP contracted again (and by nearly 1 percentage point more than GDPNow had originally estimated!) And despite Wall Street cheer, Q2 GDP may not come in much better. And on the tangible employment front, it is important to look at alternative measures of employment to get a proper read on how things genuinely align to a time when we shared similar “good feelings” in our past. After all, a feeling of “better” should often be associated with a significant proxy in the past that serve as a benchmark for that term.
Let’s look at the employment to population ratio. The ratio for May just ticked up 0.1 percentage points, to a cyclical high of 59.4 percent. Still, this level is well shy of the 62.0 percent that was the worst reading reached of 2003 (in the aftermath of the 2001 recession). The official unemployment rate doesn’t take into account the broader population, so even though its current 5.5 percent appears to be an improvement (the level resides between the previous cycle’s high of 6.3 percent in 2003 and its low of 4.4 percent in 2006-2007), we must seek a broader unemployment measure to better reflect the economy’s changing labor force (or should we say the change in who’s not in the labor force?)
The U-6, the official broadest formulae for unemployment and underemployment in the U.S., is at 10.8 percent. This level is still completely higher than the worst reading we saw in 2003 (10.4 percent). In fact prior to the current cycle, we have to go back in time 2 cycles (June of 1994) in order to see a U-6 reading that is even worse than the current 10.8%.
What this all evidences is that in some elements of the economy, and some influential portions of the population, things feel great (perhaps as good as ever!) But for many other people in the economy it still feels frozen, at best. Just looking at the fairly, well appreciated U-6, and seeing that is now finally within a 1/2 percentage point (of the worst from the 2001 recession fallout) and thinking some are forced to embrace this now as a sign of a recovered market. Something seems premature when celebrating the employment to population ratio, or even the U-6, both of which are just as easy to see alongside the headline payroll numbers. It’s because at the end of the day, the “new normal” shouldn’t be one where our current best is worse then our prior worst.
Salil
Statistics Topics (commerce)
Statistical Ideas (subscribe)
Board of NJ D.O.E. subsidiary
Academic Board of FutureAdvisor
Couple top articles in Harvard Statistics Dept.
Georgetown Adjunct bio
American Stat. Assoc. Editorial Board
Former U.S. PBGC executive Dept. Director of Policy, Research, & Analysis, and first interim Risk Officer (Obama Administration)
Former U.S. Treasury/TARP Director of Analytics
Yeah. It’s free market capitalism. And if you like your job of twenty years it produces stuff people don’t want, but you feel we owe it to you to stay in that job than yes, you’re not doing as well.
Like it or not. If you make buggie whips, don’t like learning about computers, and plan to rely for your retirement on Social Security, want a globally dominant military, lots of interstates, a big house with a lush lawn, and pig pickup but want less government and lower taxes you are screwed,.
and then we have the ‘sharing’ economy, where there really arent workers. they are all just contractors who dont really fit the definition of contractors. and we do have a side of wage theft. plus we seem to have eliminated any semblance of employer support of the injured workers , injuries that happened on the job. but we absolutely must support the TBTF banks. and high bonuses for them, plus high ceo wages. because
It’s all Gen-X fault. We just don’t make enough money to make the economy boom.
Before Obama was elected no one had ever heard of U6.
The crisis aftershock.
While economists tell us the recession is long since over, for many households the financial crisis left a serious scar. This is consistent with history. Looking at the aftermath of previous debt bubbles, Carmen Reinhart and Kenneth Rogoff found that the hangover is deep and long lasting. Growth was more than 1 percentage point lower relative to normal periods, and the average duration of the overhang was 23 years. http://www.blackrockblog.com/2015/06/11/sluggish-economic-recovery/
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ADMIN: Incorrect — we have been discussing this since before Obama was elected:
A Modest Proposal (U3 + U6) (June 12th, 2008)
and this
NFP: Even Worse Than Reported (December 8th, 2008)