Unemployment numbers reported in the US can get a little confusing because they can be sliced and diced in different ways and news reports hardly ever go beyond the headlines to explain which numbers they are talking about. Here we take a look at two numbers that are used most often when reporting unemployment.
Official Unemployment Rate
The Bureau of Labor Statistics calculates six types of unemployment numbers and the official unemployment number is called – U-3, which is the total unemployed, as a percentage of the civilian labor force.
This number is seasonally adjusted and stands at 9.5% for June 2009. The first thing to note here is that the percentage of unemployed is a percentage of the total work force and not total population.
So, a 9.5% unemployment rate means that 9.5% of the eligible work force is unemployed and not 9.5% of the total population.
This number is released monthly and most of the time the breaking news you watch on TV quotes this number.
In May, the unemployment number (U-3) rose to 9.4%, and for the first time the unemployment rate had risen beyond the 8.9% rate the government had estimated as its adverse scenario for the stress tests.
The key however was that the May numbers were just numbers for one month while the adverse scenario in the stress tests was the average for the whole year.
The way the numbers look currently, we may very well hit the adverse numbers projected by the government, but it’s important to note that you can’t compare a monthly number with a yearly one. Just for reference, the unemployment rate for the whole year 2008 was 5.8%.
The Other Unemployment Numbers
The official unemployment number is U – 3, but this doesn’t include all type of unemployed people. U – 3 only considers those people who have actively searched for a job, but are still unemployed.
But as you can imagine, there are people who have stopped looking for a job, but are available for work and then there are people who wanted a full time job, but could only manage a part time job. These people are also unemployed or partially unemployed but are not part of the official unemployment number. There are separate numbers for these – U4, U5 and U6, but somehow these are not reported very often in the media. The U6 number is the most inclusive of them all, and stands at 16.5% for June 2009.
Continuing Claims
Apart from the official unemployment rate the other number that is reported quite frequently is the number of workers who get unemployment benefits. This is called “continuing claims”.
Obviously a declining continuing claims number is a good sign, but there is one caveat there. Continuing claims can go down because people who were getting these benefits have been jobless for more than 26 months at which point they start receiving the Federal Unemployment Benefits, and they are out of the continuing claims count. So, while the labor market didn’t improve, the reported numbers improved slightly.
The other thing to keep in mind is that unemployment rate and continuing claims are two separate things. Very often, people tend to think that the unemployment rate is based on just the number of people who claimed unemployment benefits.
However, to calculate the unemployment rate, data is collected from the Current Population Survey (CPS), a monthly survey of over 60,000 households, and so it takes a more holistic view than simply the continuing claims number.
Conclusion
If you are looking at the unemployment numbers to get a general feel of how the economy is doing then the nuances probably don’t matter that much. But, if you are using the unemployment number for investing cues, signs for the recession to end or whether it indicates a jobless recovery etc. then it’s important to understand what number you are using and how it was arrived at.
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