Obama's Real Unemployment Rate Is 14.7%, and a Recession's on the Way


ACRU Staff


October 15, 2012

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published October 11, 2012 on Forbes.com.

The Bureau of Labor Statistics (BLS) reported last Friday that 114,000 new jobs were created last month, according to its Establishment Survey of business payrolls that has been emphasized by the Obama Administration. That is pitifully weak, especially for what is supposed to be the fourth year of a recovery (the National Bureau of Economic Research scored the recession as officially over in June, 2009).

As economist John Lott noted at FoxNews.com on October 5, the working age population grew by 206,000 last month. With two-thirds of those working as would be expected during a normal recovery, 138,000 new jobs would have been necessary in September just to keep pace with population growth.

Indeed, the working age population has increased by 8.4 million since President Obama entered office. With the same labor force participation as on Inauguration Day in January, 2009 (which would be closer to a real recovery), that would require 5.5 million new jobs just to keep up with the aforementioned population growth. But a generous reading of the data is that during President Obama’s entire term in office, a grand total of only 787,000 jobs have been created overall on net. And all of that net growth came in the last month. As of August, 2012, the economy was still suffering a net loss of jobs during Obama’s entire Presidency up to that point.

Moreover, the BLS also reported on Friday that the number of full time jobs declined by 216,000 last month, as Lott also noted. The unemployment rate declined to 7.8% only because of a reported surprise September spurt of 873,000 jobs in the separate Household Survey of families across the nation. That reported increase is anomalous for the reasons discussed below.

But even the actual story the BLS is telling is not good. In addition to all of the above, the supposed September increase in Household Survey jobs was mostly in what the BLS calls part time work for economic reasons. The BLS explains, “These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.” That applied to 582,000 of the supposed new jobs reported by the September Household Survey, and a total of 8.6 million Americans last month.

As the Wall Street Journal editorialized last weekend,

“Working part time is certainly preferable to not working at all, but it’s tough to pay the mortgage, energy, medical and grocery bills with a 20-hour-a-week job. The job market has been bad for so long that people are settling for any paycheck they can get. One suspect in this shift to part-time work is the cost of providing health insurance, especially with ObamaCare looming.”

The BLS reported 12.1 million still unemployed in September, another 8.6 million employed part-time for economic reasons, and another 2.5 million marginally attached to the labor force. The latter “were not counted as unemployed because they had not searched for work in the 4 weeks preceding the [September] survey,” even though they “wanted and were available for work,” according to the BLS.

All of these are counted in the U6 unemployment rate as also reported by the BLS. Because the primary change during the month was that 582,000 on net shifted from unemployed to employed part time for economic reasons, this U6 unemployment rate remained unchanged last month at 14.7%. The total suffering this U6 unemployment was 23.2 million.

Moreover, even this doesn’t nearly fully account for the 8.2 million Americans who have given up hope during the Obama term of office, and dropped out of the work force altogether. When you are considered out of the work force, you are no longer counted as unemployed, even though you still do not have a job, and you still want and are available for work.

The U6 unemployment rate counts only 2.5 million of those 8.2 million who have given up hope and dropped out during the Obama years. The ShadowStats website, which counts the long term discouraged workers the government doesn’t count, reports the total rate for the unemployed and underemployed (part time for economic reasons) as 22.8%.

Of the 12.1 million the government does count as unemployed, a record 40.1% are long term unemployed for more than 6 months. Despite the President’s rhetoric on the campaign trail about manufacturing coming back under his policies, manufacturing jobs declined by another 16,000 last month, making a total decline of 38,000 in the last two months.

Moreover, the forced shift to unwilling part time work is a major contributing cause to declining real family incomes. So is the shrinking labor force, with more and more people giving up the search for work. In August, the labor force participation rate for men was the lowest on record, which goes all the way back to 1948. The overall labor force participation rate had declined all the way back to September, 1981, before the Reagan recovery.

In addition, the jobs being created are not replacing the incomes of the jobs being lost. As economist John Lott also reported at FoxNews.com on October 3, “Mid-wage occupations accounted for 60% of the jobs lost during the recession, but low-wage occupations accounted for 58% of hiring during the recovery.”

As a result, since President Obama entered office, annual median household income has declined by $4,019, or 7.3%. Moreover, the decline has been greater since the recession supposedly ended in June, 2009, than it was during the recession. In the three years from June, 2009, until June, 2012, median household income declined by 6%.

All of this is causing an increase in inequality in America rather than a decline, as higher income workers are not being forced into part-time work, dropping out of the work force, or suffering mid-wage jobs being replaced by low-wage jobs.

The reported, supposed, spurt of 873,000 new jobs in the September Household Survey is anomalous and dubious for several reasons. It is wildly inconsistent with the more reliable Establishment Survey of 114,000 new jobs, based on business records, which is why the media has always focused on that number. It is wildly inconsistent with GDP growth as well, reported as 1.3% in the second quarter, and in decline over the past two years. Creating 873,000 jobs a month would reflect economic growth 3 to 4 times as large, at least.

The economy supposedly creating 873,000 new jobs in September, while losing 216,000 full time jobs, is also quite doubtful. The loss of 16,000 manufacturing jobs in September, totaling a loss of 38,000 over the past two months, raises similar doubts. Indeed, the reported September Household Survey increase of 873,000 jobs is inconsistent with the Household Survey’s reported decline of 119,000 jobs in August and 195,000 jobs in July. The Obama Administration, and its party controlled media allies, totally ignored the Household Survey as too unreliable in those months.

All of this contradicting data, and much more, is instead consistent with the more grim reality that the economy is sliding back into renewed, double dip, recession. Real GDP growth has been in long term decline under President Obama, from 2.4% in 2010, to 2% in 2011, to only 1.6% in the first half of 2012, and 1.3% in the second quarter. During the first 3 years of Reagan’s recovery, economic growth was nearly 3 times as large.

The record low labor force participation rates mean that nearly 25% of Americans from 25 to 55 are not working. Economist David Malpass in the weekend Wall Street Journal for September 29-30 notes the Commerce Department
reporting that “orders for durable goods fell 13.2% in August” and “inflation adjusted personal income fell 0.3%,” which Malpass terms “bright red recession flags.” He adds that “Inflation-protected Treasury bonds have a negative yield for the first time in history,” which indicates “a market expectation of negative real growth.”

Malpass summarized Obama’s economic policies as “His plan is to move the economy ‘forward’ by keeping the current policy framework in place and adding higher tax rates on income and capital gains.” Indeed, now scheduled for January 1, under current law, are increases in the top tax rates for virtually every major federal tax, as the Obamacare tax increases become effective, and the Bush tax cuts expire, which Obama refuses to renew for the nation’s successful small businesses, job creators, and investors. But the current policy framework has not worked. And those tax rate increases are unambiguously recessionary. That is why Malpass rightly concludes, “the new Commerce Department numbers, combined with [Obama’s] stay-the-course approach, point to recession in 2013.”



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