Looking Behind the Data

One of the planks that economic Pollyannas have been resting their bullish outlooks on is the fact that the U.S. unemployment rate is not far off the lows seen since the economy rebounded from the 2001 recession.

Unfortunately, the optimists seem to be relying on a statistical mirage. That shouldn't surprise readers of this blog. As many Americans have come to realize, the data our government produces often doesn't jibe with the reality they know.

In "The Underemployment Rate Is Rising," CNNMoney.com's Chris Isidore explores this issue in greater detail.

Don't be fooled by the relatively low 4.8% unemployment rate. Other measures, such as the number of people only working part-time, are a sign of recession.

An unemployment rate at 5% used to be called full employment. Today it's considered the sign of a recession.

When the Labor Department gives its March employment report this Friday, it's important to keep in mind that the relatively low unemployment rate isn't telling the whole story about the weakness of the U.S. labor market.

Economists surveyed by Briefing.com are forecasting a loss of 50,000 jobs from the nation's payrolls in the month. That would mark the third straight month of job declines.

The unemployment rate is expected to jump to 5.0% from 4.8% in February.

But some economists point to other readings, which show that the market is much weaker than the unemployment rate would suggest.

More part-time work, less full-time positions

For one, there has been an increasing number of people who want to work full time who are only able to find part-time jobs.

There is also a rise in the number of those who have stopped looking for jobs because they've become discouraged by the weak market. Finally, there has been a decline in the number of employees working as independent contractors.

"You do see indicators of a softer market than just the raw [unemployment] numbers," said Bill DeMario, chief operating officer of Ajilon Professional Staffing, a unit of staffing giant Adecco. "To some degree, we've already experienced some of the impact of a slowing economy."

According to the February jobs report, there were 565,000 more part-time workers who wanted full-time jobs than a year ago. That's a 21.1% jump in the number of those who are under-employed.

In addition, a rapidly increasing number of people are being forced to take more than one job. There were 161,000 more workers in February who held more than one part-time job than there were in January. One economist said this is a further indication of how bad the market is.

"Basically, this is a sign that we're in a recession," said David Wyss, chief economist for Standard & Poor's.

Wyss said another sign of the weakened market is the steady decrease in the past year in the number of temporary employees in the business and professional services sectors. There has been a loss of more than 100,000 jobs in this category in the past 12 months.

"This is a leading indicator, since these are very often the first employees cut," said Wyss.

Jobs market worse than it seems

With all this in mind, the headline unemployment rate might not be the best way to judge how the overall labor market is doing.

That's because the unemployment rate calculates only the percentage of workers who describe themselves as unemployed, divided by the number of those potential workers counted in the labor force. So under-employed people don't show up as unemployed.

Also not showing up as unemployed are those who want a job but are no longer counted as being in the labor force for a variety of reasons. The number of people fitting this category rose by more than a half-million between November and February.

And if you look at the number of people out of work in addition to part-time workers who want full-time jobs as well as people not searching for a job at the moment, a far more alarming picture emerges.

Keith Hall, the commissioner of the Bureau of Labor Statistics, which prepares the monthly jobs reports, said in Congressional testimony last month that this broader measure stood at 8.9% in February, up from 8.1% a year ago.

"We've clearly had a broad weakening in the labor market," Hall said.

Don't forget contract workers

What's more, the somewhat confusing way that the government collects data about the job market may also mask how bad conditions are right now.

The unemployment rate is calculated by a survey taken among members of the general public, the so-called household survey. But the payrolls number is derived from a survey of employers.

The household survey shows the number of job losses over the past three months was 654,000 compared to a loss of only 44,000 jobs according to the payroll survey during the same period.

Wyss said part of the reason for the bigger job loss in the household survey is that contract workers, those who are independent contractors, are not counted as having a job in the payroll number. But they are reflected as having a job in the household survey.

So it's not surprising that employers looking to cut labor expenses might trim contract workers first, Wyss said, since they don't have as many severance costs and unemployment benefits to pay when they do so.

DeMario agrees that employers have been quicker to cut back on the use of contract employees in the face of a looming economic slowdown.

"That is a typical reaction," he said. "We have clients that were fairly robust users [of contract workers] in 2006 discontinue usage almost completely by the third quarter of 2007."

In other words, even more job losses are probably on the horizon...even if those numbers don't get factored into the headlines of the latest employment report.

Comments

[GreenAB]

great interview, thanks for linking to it!

[Lady From Middle America]

Thank you for frequently posting articles that question our employment statistics. Like Isidore states, the numbers are not the whole story. It's one thing to have a 4.8% unemployment rate where most workers are relatively satisfied with their salaries, perceived job security, and the ability to obtain an equivalent or better job if they quit or are laid off. It's another thing to have a 4.8% unemployment rate if the workers are having problems paying their bills, fear being laid off at any moment, and are worried about getting the next job before the unemployment benefits run out.