Tuesday, October 12, 2004
In a letter to Altercation, Barry Ritholz of The Big Picture explains why the "official" unemployment figure of 5.4 percent is a convenient fiction:
The standard media line about Friday's disappointing jobs data is that there was a little something for each side -- weak job creation was bad for Bush campaign, and low unemployment undercut Kerry's argument.
This turns out to be false.
According to some savvy number crunchers on Wall Street, the unemployment rate of 5.4% dramatically understates how bad the labor situation is. That incumbent friendly number is actually the result of mathematical sleight of hand, and analyst research states that the actual number may be closer to 9.4%.
This does not come from political partisans; Rather, it comes from economic analytical services who make their money advising huge institutions (mutual and hedge funds). These real dollars at risk are unconcerned with "politics," -- they focus instead on investment performance. That means there's no room for overly rosy scenarios -- it's "all reality, all the time." It has to be when there are (literally) trillions of dollars at stake.
So what do the analyses conclude? It turns out that the real reason the unemployment rate appears so low is that people are dropping out of the work force. The labor participation rate has fallen to 66% from a high of 67.3%. There are over 140 million people in the labor force, and that 1.3% drop represents nearly 2 million additional unemployed people not showing up in the data. We have reached a decade long low of civilian, unemployed working-age population who are actually looking for work.