Market Talk

Psst, Harry! It's worse than you think.

In the wake of last week’s October jobs report, it seemed to me that one piece of data the Bureau of Labor Statistics reports was getting more attention than it usually does. This is the U-6, the broadest measure of unemployment, which hit 17.5% in October. (By comparison, the “official” rate, the U-3, sat at 10.2%.) I even started writing a post to that effect, but shelved it because I thought, well, maybe it’s just me.

I’ve been writing about the U-6 for some time; I don’t remember exactly when I became aware of it, but it was some years ago. It measures not only the unemployed, but “marginally” attached workers, and part-timers who can’t find full time work. Basically, everybody who wants to work full-time but isn’t. But apart from some bloggers like Barry Ritholtz, nobody paid it much mind.

You can file this under anecdotal evidence, but I think that might be starting to change, because the opinion out in the street may be overwhelming the opinion engineering out of Capitol City.

It seemed to me on Friday that, certainly in the newsroom, there was more banter about the U-6, even if nobody calls it that. I’m pretty sure I heard some of the folks on CNBC and Fox Business talking about (we have to four flat-screen TVs overhead that are tuned to those two stations.) But what really raised my awareness of the growing awareness of this other measure was the front page article in the New York Times on Saturday that blurted it out: “Broader Measure of Unemployment Stands at 17.5%.”

Say what you want about the Times, it’s still a major newspaper and a major influence; if they’re putting that on the front page, it’s putting that number, 17.5%, on a lot of people’s radar. Wall Street loves to dismiss the jobless rate, because it’s supposedly a “lagging indicator,” but it’s not lagging on Main Street. It’s a leading indicator on Main Street.

And it’s not just old-world media properties that are accepting that number as a better representation than the official rate. Newswires reporter Ben Charny filed this snippet yesterday for the wires version of Market Talk:

Unemployment is actually higher than the commonly reported 10%, Manpower (MAN) CEO Jeff Joerres says at an Ernst & Young conference. Referring to the government’s broadest measure of unemployment, Joerres says there’s “a whole bunch of discouraged workers not looking for work,” and other factors, he said. “Lets call it what it is: 17.5%.”  That figure is the “U-6,” the widest measure of unemployment reported by the BLS. The “official” rate, the U-3, is 10.2%. But Joerres was also optimistic. The US economy appears “on the bottom,” and is “sawtoothing its way up.”

Manpower is a big temp firm; for the CEO to hold that view is telling.

All of these measures, remember, are estimates. Even the widely reported 25% unemployment rate from the Great Depression is an estimate. The government didn’t measure unemployment using current methods until the 1940s, professor Richard Sutch at the University of California told me back in 2008. The Depression numbers were extrapolated by historians after the fact.

(Professor Sutch’s opinion, incidentally, was that the U-5, which includes “discouraged” workers but excludes part-timers, was the closest to the Depression measurements. The U-5 currently sits at 11.6%.)

While the BLS reports the U-6, it certainly doesn’t publicize it; it pushes the U-3, the “official” rate. So why do people feel the broader measure is a better measure? Maybe because for a lot of people, the situation does feel worse than the picture being “officially” painted. It’s hard for me to say. I know only a few people who have directly lost their jobs through this recession, thankfully (if any of you have, I’d like to hear from you, email me.)

But whatever the number is, 10.2%, 11.6%, 17.5%, unemployment is still the major issue as the government tries to recast the virtuous circle of demand, sales, jobs, wages, profits, expansion, more jobs, higher wages, greater demand, better sales, higher profits.

Without jobs, the recovery is just so much government and Fed engineering.