U.S Unemployment Reaches 15%

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Just because you don't have a job in the U.S. doesn't mean the government considers you unemployed. The monthly Jobs Report was released today and the headline number was an unemployment rate of 8.1%. This is however the rosiest possible interpretation of the U.S. employment picture. While 12.5 million people were counted as unemployed, there were an additional 2.1 million 'marginally attached' workers (also known as discouraged workers) - people who looked for a job within the the last twelve months, but not in the last four weeks. These people are not considered to be unemployed. A much larger 8.6 million workers worked part time last month and are considered fully employed even though they may have worked as little as an hour a week and wanted to work full-time. If you consider the discouraged workers and involuntary part-time workers as unemployed, the U.S. unemployment rate is actually 15.0%.

This 15% is calculated using the government's own numbers. This is more than enough reason to think things might be even worse than what the government is telling us. Every employment report since the Credit Crisis began in the fall of 2007 has had two downward revisions after the initial numbers were released and these have frequently been substantial. As an example, December 2008 jobs losses were initially reported at 524,000. That was revised to 577,000 last month and in the current Jobs Report the losses have now been updated to 681,000. An additional loss of 151,000 jobs for January and December combined showed up in today's report for February employment. You should expect that the January numbers will be revised downward again next month (the numbers are revised for two months). The 651,000 loss reported today will almost certainly be larger in the April and May reports.

Looking inside the figures you would also note that three categories have gained jobs every month since the Credit Crisis began - health care, education, and government. Most education and many health care jobs are of course government related. While it is possible that employment in health care is increasing, considering the poor fiscal condition of state, local and the national government in the U.S., it is quite incredible that more and more people are working in education and directly for the government. Where is the money coming from to pay for these workers and what are they being hired to do?

In the 1930s Great Depression, U.S. unemployment is believed to have peaked around the 25% level (approximately the same rate that was reached because of the hyperinflation in Weimar Germany in the 1920s) . This is just a rough estimate because the data gathering infrastructure that exists today, didn't exist back then. If you see the alternative unemployment numbers reach 20% or so, it would be reasonable to assume that current economic conditions are as approximately bad as they were in the 1930s.

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Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.