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Real Unemployment Explained (Vol. 158)

The Headlines Do Not Tell the Real Story


A lot of folks are feeling stress in our economy. We are told the economy is great, growing and has plenty of jobs.  But the stress is real and people are expressing this.  Why?  Maybe, just maybe, the politicians are not being candid - could that possibly be so?  Let’s take a closer look at the real world. 


Unemployment is at historic lows in recent years.  Hooray!  At 3.9% last month, it appears all is well, even though it has increased a bit up from earlier months, still very low historically.  All the politicians in office promote the ‘good news’.  We added 175,000 jobs last month.  But is it really that good?  Let’s dig a little deeper to see the real story.


There are several measures on unemployment, let’s look at the 2 most common ones:


Establishment Survey:  This is a measure of all jobs, full and part time, as determined by survey of businesses.  It does not measure the number of  people employed - just the number of jobs.  


Household Survey:  This is a measure of the number of people actually employed and working.  


There is a very large difference between these two surveys recently and that may partly explain why there is concern about individual economic circumstances.  


The analysis is somewhat complex, and if you want more detail, there is an excellent analysis of this, and more, about our current economic situation in this article from Mises Wire.  


Let’s summarize with a few pertinent facts:


  1. In April, the total jobs increased by 175,000.  However, the number of employed workers increased by only 25,000.

  2. Over the last 12 months, total part-time jobs increased by 1,000,000.  During that period, the number of full-time jobs decreased by more than 500,000.

  3. The numbers were fairly close until early 2022, since then the gap has risen to 3,600,000.  People employed has been relatively flat since then while the number of jobs has grown.  That is mostly because of part time employment and many people working multiple jobs.  

  4. Both surveys showed strong growth until then, and at that point, early 2022, things changed.  Jobs continued to grow while people employed slowed and has been almost flat for the past year.  Part time jobs grew at 8%.  

  5. Full time jobs have moved to recession over the last 3 months, with a negative growth.  Historically, this has always been a recession signal.

  6. Temporary jobs have had negative growth for 18 months, another sign, historically, that we are headed to a recession.  


Taken in total, the jobs picture is not what the politicians would have you believe, and in fact, may be the indicators of a recession coming.  


BOTTOM LINE


The pain many are feeling is real.  Permanent employment is not growing and wages are not keeping up with inflation over the last 3 years - real incomes have declined as price increases have exceeded income growth.  Wages and commodity prices are increasing and that underpins inflation.  Those pressures will continue  as long as the government continues to spend vast amounts of money it does not have and must borrow or print more to cover the huge deficits.  That will probably keep demand and prices up until we have a recession.  


The ‘soft landing’ of the economy may not be so soft if we are truly to conquer inflation.   While inflation has declined from its peak, it is not gone and may be headed back up.  If we are to conquer inflation, it means we must decrease aggregate demand, and that happens in a recession.  


Recessions usually are induced by high interest rates which slows some key parts of the economy.  And as this slowing ripples through the rest of the economy, demand decreases, employment falls and unemployment rates go up.  We may be seeing early signs of that now as we saw in the  above data, employment is slowing, an early signal.  However, this may not have been enough to tame inflation to desired levels.  The case can be made that interest rates need to increase further to actually get inflation under control.  


LEARN ECONOMICS, THEN VOTE SMART

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