WASHINGTON: Headlines blared Friday, trumpeting another astounding drop in a widely followed government unemployment measure. The announced U-3 unemployment number for the month ending April 30, 2018: an ultra-low 3.9 percent. Even better, the rarely noted but more representative U-6 unemployment rate also dropped to a significant low of 7.4 percent.
During the 8 years of the Obama administration, the media frequently touted even 0.1 percent declines in the U-3 rate, claiming they offered proof that the Lightworker’s zero-growth economic policies were “working.”
Oddly enough, as Instapundit notes, at least one media outlet immediately seized upon the most recent, dramatic decline in the unemployment rate under the Trump administration as eminently ignorable.
UNEMPLOYMENT HITS 3.9% UNDER TRUMP AND, RIGHT ON CUE, HERE’S SLATE: “The unemployment rate is meaningless.”
We’ll deal with Slate’s fake economic news in our next column.
As for now, we should note we’ve been preaching for years that the Federal government’s favorite unemployment rate – designated U-3 by the Department of Labor (DOL), which charts this information – is not the true measure of U.S. unemployment. Instead, we prefer to follow the real DOL unemployment measure: the U-6 unemployment rate.
According to the statistical web site YCharts, the U-6 unemployment rate consists of
“all unemployed, marginally attached and part-time for economic reasons individuals as a percent of the civilian labor force plus all marginally attached workers.”
The widely followed U-3 rate neglects to count unemployed workers in this category. Most tellingly, the U-3 rate does not count unemployed workers who’ve exhausted their unemployment benefits. Once that last unemployment check arrives in their mailboxes (or electronic bank accounts) these unemployed workers are dropped from the U-3 count. But they’re still unemployed. How’s that for statistical accuracy.
Nonetheless, during the month of April, while the widely reported U-3 unemployment rate dropped to 3.9 percent – a 17-year low according to most reports – the U-6 unemployment rate also took perhaps a more significant dive – to 7.4 percent. The continuing U-6 decline under the Trump administration has accelerated noticeably since Barack Obama left office.
The significant declines in the U-6 rate – the real unemployment rate – are far more significant than those widely-touted U-3 numbers, which, in some respects, amount to a fake unemployment rate. No matter how bad they get, the U-3 numbers are far less horrifying than the generally much-larger U-6 numbers. Thus, politicians in power can minimize their significance to the electorate, while the real, disguised unemployment rate (U-6) remains painfully high.
Ignoring these numbers is another way in which the average American worker has been marginalized and/or ignored by both local and national politicians and their media supporters. It hides just how bad real unemployment is for the average “deplorable” American.
The Fed should reign in its enthusiasm for interest rate hikes. Why wreck the ongoing progress in U-6 unemployment numbers?
At 7.4 percent and sinking, U-6 is closing in on a moderately respectable range. But the current number still leaves room for improvement.
Using the U-3 number, however, allows the Federal Reserve to pretend that inflation is an increasing danger. That gives the Fed statistical leave to keep hiking rates. But at a rate that could very well damage the Trump Recovery over the next few months. We’ll have to wait and see if this transpires.
We think the Fed should hold back for now. Let that U-6 number settle down a couple of percentage points more. Otherwise, the nation’s central bank will risk an instant replay of 1937.
That year, after FDR had won re-election for his second term, the Fed overplayed its anti-inflationary hand. They raised interest rates to aggressively and killed off a budding, long-awaited economic and employment recovery in this country. Sadly, it took the Second World War to right-size U.S. economy activity again.
Given current circumstances both here and around the world, we’d hate to see an instant replay of that economic solution.
(Headline cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.com.)