Economics, U.S. Economy

The awful April jobs report: Is the ‘real’ unemployment rate 11.1%?

Any way you slice or dice it, the April jobs report was terrible—and terribly disappointing. Employers added just 115,000 workers to their payrolls last month, way below the 180,000 Wall Street economists were expecting. Hiring has now slowed in three straight months. Job growth in March and April averaged 135,000, down from an average 252,000 per month in the three months to February. As IHS Global Insight explains: “Prior job gains at over 200,000 per month were inconsistent with the modest pace of recovery in overall output – GDP was up only 2.2% in the first quarter. It now appears that jobs have decelerated into line with GDP, rather than GDP accelerating to catch up with jobs.”

And JPMorgan put it this way: “The April employment report was softer than expected and signaled a downshift in labor market momentum.”

Sure, the official unemployment rate dipped a tenth of a point lower to 8.1%, but that’s only because people continue to drop out of the workforce at an alarming pace. That workforce shrinkage, as measured by the labor force participation rate, totally distorts the true unemployment picture. In fact, the participation rate is now at its lowest level since 1981! (For comparison purposes, the economy added 480,000 jobs back in April 1984, during the Reagan recovery.)

So what is the true state of the labor market?

1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.6% today—the U-3 unemployment rate would be 11.1%.

Now, this doesn’t take into account the aging of the Baby Boomers, which should lower the participation due to rising retirements. But is that still a valid assumption given the drop in wealth since 2006?

2. If you take into account the aging of the Baby Boomers, the participation rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the partipation rate would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.7%.

3. Of course, the participation rate usually falls during recessions. Yet even if you discount for that and the aging issue, the real unemployment rate would be 9.3%.

4. If the participation rate just stayed where it was last month, the unemployment rate would have risen to 8.4%.

5. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labor market’s health, is still a sky-high 14.5%.

6. The employment-population ratio dipped to 58.4% vs. 61% in December 2008. An historically and alarmingly low level of the U.S. population is actually working.

7. And given that real disposable income has been flat the past two years, it stands to reason that many of the jobs being created are in low-wage sectors. Indeed, hiring in sectors such as retail and leisure has accounted for a whopping 40 percent of the jobs added over the past two years.

The labor market remains in sad shape—despite Obama White House claims that it’s “continuing to heal”—and it is unlikely to improve much if the economy continues to grow around 2% or so.

James Pethokoukis is a columnist and blogger at the American Enterprise Institute. Previously, he was the Washington columnist for Reuters Breakingviews, the opinion and commentary wing of Thomson Reuters.

 Pethokoukis was the business editor and economics columnist for U.S. News & World Report from 1997 to 2008. He has written for many publications, including The New York Times, The Weekly Standard, Commentary, National Review, The Washington Examiner, USA Today and Investor’s Business Daily.

 Pethokoukis is an official CNBC contributor. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, The McLaughlin Group, CNN and Nightly Business Report on PBS. A graduate of Northwestern University and the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! Champion.

Pethokoukis can be reached [email protected] or follow him on Twitter @JimPethokoukis

59 thoughts on “The awful April jobs report: Is the ‘real’ unemployment rate 11.1%?

  1. In my humble opinion Mr Romney should highlight the outrageous undercounting of the unemployed under recent administrations and pledge that under a Romney administration we will have honest accounting no matter where the chips may fall.
    Let people know that corrupt business as usual is going to end.
    How do we confront the actual issues when their magnitude is intentionally hidden for political gain? We all know that the true unemployment number is far higher than what the government figures show. It is far past time for the charade to end.

  2. The U6, or as you call it, the truest measure of the labor market’s health, was 15.1 percent on President Obama’s first month in office. Are you accusing President Bush of creating a “sky high” economic problem?

  3. The administration is deliberatly keeping the drop out rate quite..If that would be publicized then the liberal democrats would all be running for cover..They do not want the true figures to be known the American public

  4. As people get older and drop out of the employment pool, all else being equal, the unemployment rate should drop. So Obama should get zero credit for aging baby boomers. It’s not fair to state discount that impact.

  5. Am I reading this graph correctly? We end up in the same position with the recovery plan that we would have been without the recovery plan? So why was nearly $1 trillion of taxpayer money spent?

  6. The U-6 rate is NOT a measure of unemployment, as that would be contradictory, counting people with jobs ( albeit underemployed) as unemployed.

    • So you don’t consider people with engineering degrees who are delivering pizzas because they can’t find a job for which they’re qualified to be a problem?

  7. Actually the numbers weren’t terrible, they weren’t great but with the previous two month upward revisions they certainly weren’t terrible. Pethokoukis as usual exaggerates. And these elaborate calculations to make the picture look worse are a bit silly, the numbers are what they are. Demand remains weak and total federal/state govt spending is actually falling so the silver bullet if there is one is pump priming by one means or another and this means either more tax cuts or government spending.

    • How can simple facts be “exaggerations?” The numbers are, as you say, what they are. What is “elaborate” about calculations that show the job picture is much worse than the official 8.1% (bad enough in itself)? Show us where Pethokoukis fudged the numbers, failed to report something, or otherwise attempted to make things seem worse than they really are? The plain unvarnished truth is that Obama’s legislative “achievements,” such as Affordable Health Care, have caused so much uncertainty among business owners that they are unwilling to take on additional employees in spite of slightly rising demand in some sectors.

    • I’m sorry, but they were terrible. The American economy needs to add about 220,000 new jobs per month to keep the unemployment rate constant. In April we added 115,000 new jobs. Yet the unemployment rate supposedly went down?

      The plain fact is that the numbers are being cooked to make things seem better than they really are. They’re a con job, just like practically everything else about this administration.

      Here’s a good article on the subject:

      http://www.foxbusiness.com/investing/2012/05/02/emac/

    • Are you on drugs? More than 300000 dropped out of the labor force. We are at the lowest participation rate in 30 years. We should have GDP growth now of 5-6% and we are only getting 2%. This is really bad- people are very discouraged. We will try to correct this problem in Nov.

    • Actually, it’s disingenuous to cry “exaggeration” simply because through one’s Obama-colored glasses you don’t like the way facts are presented.

    • Beppo Are you kidding us or do you know no better …. One suspects the ladder .

      Last Months 115,000 numbers matched god awful 1982 Numbers .. the heck with the last two months that were terrible .We need 400, 000 Jobs a Month to keep from DROWNING ….
      500, 000 means the economy is really coming back .
      Producing 3.2-3-4 % Growth Not like now and 1.3 % and Three months ago at 2.1 % .
      China ….. 6.9 % Growth .

      88 Million in America don’t work…. 47.9 Million are on Food Stamps and Housing dropped to a 7 year record low as did Commercial building especially Shopping Centers .
      Retail sales fell and new Housing dropped off the planet as did “”New Tools ” For Manufactories .
      23.7 % Are Looking , Not Looking and working part time .
      M-1 (cash Flow )and M-3 (Loans Available )were terrible as were the 12 Top Economic Indicators Gray and Beige Books .
      Miles over your head of Economic Understanding obviously .
      Simply Put Obama has on purpose made the Economy far worse .
      Opening up our Entire Drilling Recourses would have gone a long way at revitalizing our Jobless and Economy .
      Since 84-86 % goes for Food , Toll’s , Heating ,Electricity ,payments on cars and homes . Property taxes , insurances, Gas and total Living expenses that is killing the middle class .
      Who will Vote against the enemy within to Quote The Art of War Being Obama and all far leftist .

    • The great progressive myth is that you can ‘prime the pump’ on the economy. Government spending is always a burden on the economy. The money spent by government is taken out of the economy by either taxes or borrowing. At best “stimulus spending” is like taking water out of the deep end of the pool to fill up the shallow end. At worst the water (wealth) gets wasted in transit. The best thing the government can do is create a stable environment for economic growth through private investment. Investers don’t invest when they beliee they will either get a low return or have that returned taxed away. So the question isn’t what can we do to ‘stimulate’ the economy, or how can we ‘prime the pump’. The correct question is what is holding the economy back, or what is keeping investment (aka capital) out of the markets! I would say, the uncertainty surrounding what Obamacare will cost, the fear over how much more money will goverment waste as it continues to expand, the consistent threat of higher taxes, and over burdensome regulations. The remedy for these is entitlement reform, regulatory reform, and tax reform. Until there is a belief that these will happen, that the ‘growth of government’ will either be restrained or rolled back, investment will sit on the sideline in safer havens like gold.

  8. It would be interesting to know how many of the disappeared workers are dual citizens of the US and another country and have simply gone home. This doesn’t reduce the significance of the shrinking work force and what it means as a measure of the economies health but might mitigate peoples concern over the suffering of the unemployed.

  9. If you believe one graph, index or statistic from the fed or any socialist university you are even dumber then I think you are. Socialists use statistics the same way they use science. MANIPULATION OF THE POPULATION. That is their only goal. Period. They are working from a fictional narrative that has manipulation as its purpose. WAKE UP.
    suibne

  10. I think that by this time, it should be obvious to anyone with a least a few functioning brain cells that the real unemployment rate is significantly higher than the “official” rate of 8.1% Is it as high as 11.1%? Who knows? But it most certainly is well above the 8% figure that the Obama administration assured us would be the cieling, not the floor, for the unemployment rate if only we acquiesced to borrowing over $1 trillion of “stimulus” money so that he and his Democratic buddies could use it to dole out favors and pay off their allies in the public sector unions.

    The nation’s unemployment rate will not drop meaningfully untill small business, which is the true engine of job creation in this country, feels like they have a partner in the White House, one who understands their needs. That ain’t Barack Obama.

  11. Perhaps we are in the late-early stage of a shift akin to the reduction in labor experienced by first agriculture then manufacturing. The early stage of this shift seems to have been masked by the early demand from the computer age…. which is now also ending. IE computer/clerical skills seem in considerably lessening demand. America struggles to reinvent wealth creation, and during this time jobs traditionally requiring some little, or essentially no, skillset are being liquidated; to paraphrase Mr. Mellon. While our social network becomes more noisome, our marketplace seems to be tending toward hardness focused on winning the future world marketplace at all costs. Either we eat the Bear or the Bear eats US.

  12. OK, So what was the real unemployment rate when Bush led us into this mess? Oh I see Republican only use “real” unemployment rates when Democrats are in office. What a joke. No one is falling for the rhetoric anymore. Obama wins in a landslide.

  13. Another important factor is that most job creation as the economy continues to recover is among very small businesses and self employment. These numbers are not included in DOL job creation figures. This may help explain why I no longer know anyone unemployed or nervous about holding on to their private sector job.

  14. Pethokoukis should get a job as an Acrobat. He does all sort of aerial tricks and twists to try and make a dubious point: 24 straight months of private-sector jobs created; over 4 million net new jobs, an unemployment rate that has come down over 2% since its worst point.

    If Jimmy P thinks 115,000 new jobs are a dismal failure, he should speak to one of the 115,000 Americans who are now bringing a new paycheck home.

  15. The point you miss is that if the “real unemployment rate” today is 11% than the “real unemployment rate” has been higher than the official unemployment rate for years. This was true under Presidents Clinton, Bush and Obama. Big Deal. You make it sound like this is all President Obama’s problem and that the government is “lying” about the true unemployment rate.

    That is nonsense. Its all a question of how you measure it. What needs to concern everyone is when the official rate moves up because it is measuring a trend and in that case the trend would be more people losing their jobs.

    If you don’t like Obama, fine. But at least make honest arguments when you speak about economic performance during his term in office.

  16. According to the Department of Labor’s own statistics, the percent of people of employable age who were employed was 62-63% all through Bush 43′s term, falling dramatically to 58.5% during 2009, and remaining there all through Obama’s term.

    This number is easier to understand and harder to manipulate than all those other numbers. Find it at

    http://data.bls.gov/timeseries/LNS12300000

    • Your first comment shows just how much you know about the state of the situation WE as a nation are facing (no matter who gets elected). Your second shows your ignorance and total disreguard for other peoples opinions. Last time I checked, ALL American’s are entitled to their freedom of speech. This kind of talk does not serve any purpose in solving the nations issues at hand, maybe in a third world country but NOT in ours.

    • “Bigget” … “Poles” … I fail to see how the writer is a bigot or how the polls are racist. There is absolutely nothing in this article to indicate either. I suggest Rick that you are deluded, spouting off from ignorance.

    • you’re racist for calling someone racist without any facts.

      Racism goes both ways and it’s clear that you are one yourself. Do you know how many people think democrats are now racist because they go around race baiting and spewing hate speech? You’re all racist trash. Please keep doing it though, it only hurts obama.

    • Your misspelled words: do, its, headwins, loose, your, bigget, poles, rasist.

      My gosh, man–do they really pay you to write such terrible English? Learn how to spell, learn how to think, then come back if you have anything meaningful to add to the discussion.

      Thanks! (For the laugh)

      • Rick,

        Sorry about that, tabbing apparently means enter here:

        Headwins – You probably meant headwinds
        bigget – Probably meant bigot
        loose – Pretty sure you were going for lose
        poles – Unless you meant inhabitants of Poland, I’m guessing you were going for polls.
        rasist – racist

        Get a dictionary so that you won’t embarrass yourself. Maybe you should take an English writing class.

  17. The administration is hoping that the electorate will only pay attention to the number they put out, which by one means or another, will be below 8% by October. Hopefully they will not be able to fool enough people to get another term. The sad thing is, we have the ability to cure most ills through our energy industry. If the administration would allow for exploration of oil and natural gas through shale, in Alaska, off-shore; let the coal industry be and stop pumping money into failing industries simply because they are campaign bundlers and fit their ideology, we could be in good shape. We would have many high paying jobs that could not be shipped overseas, we would reduce, and maybe eliminate the trade deficit and we would have affordable energy. Our economy would be booming and we would no longer be reliant on the Middle East. It is a win all the way around. But it will never happen under this administration. If re-elected, unemployment will be even higher, as would energy.

  18. Gov’t fudging the numbers again… Everything always costs a lot more and takes a lot longer to do when the free market is not involved. It’s not like a better job is getting done.

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