The Unemployment Number That Really Matters

I usually don’t venture too much into fundamental or econometric analysis but I wanted to touch lightly on the unemployment situation in the US. It is a clearly a consequence of the malaise still afflicting the US economy which otherwise is showing some signs of growth.

The topline number which everyone pays attention to hides the true picture. It definitely can not express the pain and frustration of the millions who are either unemployed but not counted or under-employed and similarly ignored.

According to the BLS report, unemployment fell to 9% in January from 9.4% in December with non-farm payrolls increasing by 36,000. Since the expectation of the market was a much higher (140-146,000) increase in non-farm payrolls the market loved the report because it meant that monetary policy will not be easing any time soon.

There was a lot of confusion wtih the BLS unemployment numbers released last week because of the effect of the cold weather and the skewing effect of the new adjustments introduced. For example, the 103,000 gains in payroll for December was revised up to 121,000 and the 71,000 job gains for November was adjusted to 93,000. As well, unemployment figures don’t measure how many people gave up looking for a job. The best chart to cut through the clutter is this:

That is the average duration of unemployment (in weeks). I previously mentioned this last year: Non-Farm Payrolls & Unemployment Expectations. This is a simple measure of how long on average, people have been looking for a job. The current mean duration is almost 37 weeks or more than 9 months.

It was clear last year that we were seeing something truly extraordinary. I don’t want to be myopic and only look at this number while ignoring other data. But when we see the mean duration of unemployment fall, then we’ll have a very good indication of a lasting recovery. Of course, by then the recovery will have been already underway for some months. All we can say now is that perhaps for most, the employment situation is not getting worse.

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