It’s vital to separate economic statistics from political biases and motives when seeking facts that can affect someone’s career, investments, business operations, etc.
In the United States, we often wonder how we are doing from an economic health standpoint. As we look to recover from the last financial crisis and prevent another, how do we gauge how we are doing for the individual, based on how we’re doing as a nation? The information we receive often comes with baggage. This is why it’s important to gather pertinent information, and to be careful who we listen to when we gather it. With employment (or lack thereof) being a major factor in any economy’s health, let’s consider the factors that go into unemployment data in addition to the simple unemployment rate.
According to the Bureau of Labor Statistics (BLS), the unemployment rate through November 2016 was 4.6 percent, or 7.4 million people unemployed. That’s the lowest total since June 2007. While this initially appears to be positive, we must also consider the quantity, quality, cost and outside assumptions of the number. In fact, former Federal Reserve Chairman Ben Bernanke hinted a few times in congressional testimony in July 2013 that he didn’t fully believe the unemployment rate. He called it, “In some ways … too optimistic a measure of the state of the labor market.”
To look further at the BLS numbers, the quantity told needs to take into account factors from those moving out or forced out of the labor force. The Labor Force Participation Rate (LFPR) accounts for those 16 years and older who are able to work but are not. That rate stands at an abysmal 62.8 percent. This is the worst since 1977, including the 2008 financial crisis, and it has steadily declined for almost 20 years. The LFPR’s importance is that it takes away from the seemingly positive number of the above unemployment rate. In other words, a low or bad participation rate literally has an inverse correlation to creating a positive-appearing unemployment rate.
In a 2012 19-page report, financial planner Daniel Amerman wrote about how the government manipulates unemployment statistics. He observed that, “A detailed look at the government’s own data base shows that about nine million people without jobs have been removed from the labor force simply by the government defining them as not being in the labor force anymore. Indeed, effectively all of the decreases in unemployment rate percentages since 2009 have come not from new jobs, but through reducing the workforce participation rate so that millions of jobless people are removed from the labor force by definition.” While the report is not entirely objective, Amerman’s data, charts, statistics and overall observations and explanations are worthy of consideration.
Also requiring strong consideration is that the unemployment rate does not include those “marginally attached to the Labor Force”. These people are described as those who are able to work, but not searching for work for four weeks or more. This factor alone adds another 1.9 million workers to the 7.4 million reported in the unemployment rate for a new total of 9.3 million. It is important to note that this number has increased in the last year. While the “marginally attached” adds to the outcome, the Long Term Unemployed of 2.1 million adds to concerns that this number is still double what is considered normal for the United States. Additionally, the fact that one in six males between ages 25 and 54 are not working, and 83 percent of those males have not worked in more than a year, demands more research, as this number has doubled since the 1980s and is five times higher than it was in the 1950s, as shown by a report from National Public Radio (NPR).
Perhaps a clearer picture can be painted by looking at the inactivity rate for men in the 25 to 54 age bracket also provided by NPR. In January 2000, the inactivity rate sat at just 8.1 percent. By January 2008, at the beginning of the last recession, it increased to 9.2 percent. By the end of the recession, it climbed to 10.3 percent. Somewhat concerning is that today, the inactivity rate for men in the 25 to 54 age range has continued its ascent and sits at an alarming 11.5 percent. Remember, these men don’t even count toward the official unemployment rate. They are not working, but they are also not considered to be “looking for work”, either.
So, this is the 10-million-man question: Where did all these guys go?
In the last few years, several writers and economists have suggested that many of them are in school, on disability or in prison. More optimistically, some said that men are more likely to have become stay-at-home dads helping their spouses raise children and manage the house. But upon investigation, none of these answers fully explain the disappearance of prime-age men. In fact, even combining school, disability, prison and household management doesn’t explain more than a fraction of the phenomenon. More on this can be found in a June 27, 2016 story by Derek Thompson of The Atlantic entitled The Missing Men.
The term “underemployed” is used to describe people who are now working after not having a job, but the new employment is at a lower wage or less-skilled position than what they previously held. While these individuals are no longer counted in the unemployment rate, one must consider the overall impact of underemployment. In a 2016 report, Economy Markets wrote that, “There’s more to the story than just the number of jobs created. We want to know, and our economy depends on, how much money people are paid. Perhaps we’re filling the employment ranks on the low end with service workers that don’t have much of a path to the middle class, where new jobs are few and far between.” According to the U.S. Census Bureau, a further breakdown of the quality of the numbers behind the produced jobs shows that median income has decreased since 2007 by 1.6 percent, and by a staggering 2.4 percent since the 1990s. Compound this with inflationary numbers not accounting for rising health care, child care, food costs, etc. and the wage lag number continues to fall.
The cost of the attempt to rebuild the economy has come at a significant price to Americans. The national debt has more than doubled to nearly $20 trillion in recent years. This increases the U.S. debt-to-GDP ratio from 73.5 percent in November 2008 to 105.05 percent today. Economists generally consider a debt-to-GDP ratio of more than 60 percent to be problematic, and more than 100 percent becomes increasingly dangerous. These numbers come from the Federal Reserve.
Further exacerbating the unemployment issues is the sheer number of people receiving some form of taxpayer-funded financial assistance. According to a 2013 in-depth study from the Heritage Foundation, “128,818,142 people are enrolled in at least one government program.” This is based on U.S. Census Bureau information. In a detailed story, Matt Trivisonno compiled data from the United State Department of Agriculture. He created charts and graphs representing the numbers and time periods behind the program formerly known as food stamps, now named the Supplemental Nutrition Assistance Program.
There are a number of areas impacted by unemployment and underemployment. One such area seeing an impact is student loans. More specifically, student loan defaults. In his March 2013 story Surging Student-Loan Debt is Crushing the System, CNBC Special Correspondent Scott Cohn wrote, “The U.S. Department of Education said 6.8 million federal student loan borrowers are now in default, representing $85 billion in debt. And the department’s systems for collecting the bad loans are struggling to keep up.” However, according to the October 2016 Annual Report of the CFPB Student Loan Ombudsman, that number now exceeds eight million student loan defaults, representing $1.3 trillion. Something worth noting is that student loans typically have more attractive repayment terms and interest rates than other consumer loans.
Another major area of the economy feeling the impact is home ownership. According to the latest U.S. Census Bureau report, homeownership in the U.S. has fallen to the lowest rate since 1967. Home ownership has historically been viewed as a compass for economic and societal stability. Decreasing home ownership numbers are widely believed to reflect financially stressed economies.
Lastly, we’ll combine two different categories of concern regarding areas being impacted: credit card debt and auto loans. Multiple articles have been written on these two subjects, including articles appearing in The Wall Street Journal, Time, Market Watch and NPR. To summarize why these areas are getting attention, look no further than the extreme debt levels to which they have fallen.
“U.S. credit-card balances are on track to hit $1 trillion this year,” wrote The Wall Street Journal’s AnnaMaria Adriotis. “Consumers are taking on other forms of debt, too. Auto loan balances surpassed $1 trillion in the first quarter, a record for the industry, according to a report from credit bureau Experian.”
Overall, the simple unemployment rate has dropped. However, as with almost anything, there’s a lot more to a single number or percentage rate than meets the eye. As the creators of Preventative Wealth Care, we covered this topic previously on the Financial Fortitude Radio Show. However, our recent research brought many statistics up to date, and will likely warrant another show on this topic. The data provided in this report simply shows some of the key issues surrounding that basic unemployment number, as well as the work that still needs to be done.