Re: Unemployment drops from 10.2% to 7.8%
posted at 10/9/2012 10:15 AM EDT
In response to Firewind's comment:
Unemployment is the lowest it's been in 44 months, measured the same way it's been measured all along. The way that the loyal opposition has relied on to beat up the current administration all along. Down .5% in one month.
No it is not. The formula is the same; the inputs are way different, as the situation is worse and different than anything we have previously experienced.
For example: Part of it is the by-product of such a long cycle of high unemployment. Typically, shorter periods of unemployment are is use, historically, 13 weeks to maybe 26 weeks. At the end of that time, the unemployed move into one of three buckets: working, not working but looking, not working and not looking. If recovery actually happens, the 1st bucket is big, the 2nd one moderate in size, the third, very small. Hence, the U-3 is reasonably accurate.
Take today: 99 weeks of unemployment. As people fall off the end of unemployment TWO YEARS after they start, not one quarter as in previous recessions, the buckets they occupy is inverse to the typical pattern: The third bucket is the largest, the other two buckets are nearly non-existent, at least according to the data we have.
So, the workforce participation rate as a result is tremendously skewed, and in turn, skews the result of the U-3 calculation. This is why the number of 7.8%, or 8.2% for that matter, does not mean anything useful. You need to reset the workforce participation rate or use the U-6 calculation, as both will bring the number into better alignment with reality.