A chart via Nomura to keep in the back of your head as you eagerly anticipate this Friday’s BLS employment situation report in the US:
In the grey line, Nomura economists have adjusted the unemployment rate for the number of discouraged workers who have left the labour force and therefore count as unemployed in this alternative measure.
(And yes, they do take into account demographic trends by age group that would influence those leaving, the largest of which is retiring baby boomers. So the right way to understand the alternative 10.3 per cent rate is that it includes those who have left the labour force but not those who, for structural reasons, would have left it anyways.)
Similar variations of this adjusted unemployment rate make headlines now and again. Our colleague Ed Luce, for instance, noted in December that “if the same number of people were seeking work today as in 2007, the jobless rate would be 11 per cent”.
But what is striking about the broken line above isn’t where it now ends — at 10.3 per cent — but rather the lack of any meaningful, sustained improvement for more than two years.
This alternative measure has remained above 10 per cent since September 2009, and aside from a bit of skittishness (some of which is down to uncaptured seasonality) has mostly just moved sideways.
UPDATE: Kevin Drum has a sceptical response, noting that the BLS provides its own alternative measures of unemployment, and all of them show the rate to be declining:
There’s nothing magical about this. The graph comes from Nomura, but the BLS already tracks this stuff in a variety of unemployment measures that are released every month. U3 is the usual headline measure, but there’s also U4, which is U3 plus all discouraged workers, and U5, which is U4 plus marginally attached workers. As the modified FRED chart on the right shows, all three of these measures have been declining in lockstep over the past couple of years. So even if you include all the folks who have just stopped looking for work, you still see a decline of about 1.5 points since the peak in 2009.
So color me confused. Unless the Nomura folks have some reason for thinking their measure is better than any of the BLS’s measures, it looks to me like unemployment has gone down no matter how you measure it.
This is a good point, so we got in touch with Nomura economist Jeff Greenberg to ask about the specific ways that the Nomura calculation differs from those provided by the BLS.
Essentially the Nomura team has produced its own version of U-4, but has defined unemployment more broadly to include anyone who has left the labour force other than those leaving for demographic reasons.
The U-4 measure is more restrictive and you can see below for a bit more detail, but that’s why the Nomura rate is both higher than U-4 and has declined more slowly in the last couple of years.
Here’s how Greenberg explained it in an email, emphasis ours:
We definitely agree that broad unemployment has declined from its 2009 peak by any measure, and also find the alternative measures of labor underutilization provided by the BLS to be very informative.
Our calculation of the unemployment rates casts a slightly wider net than the BLS U-4 (total unemployed plus discouraged workers). We assume that all of those who have not exited the labor force as a part of demographic trends, such as baby boomers, have done so for economic reasons, and if included in the labor force would be unemployed.
Thus, our measure includes as “unemployed” more than U-4, which strictly counts respondents who want and are available for a job, have looked for work sometime in the past 12 months, and have given a job-market related reason for not currently looking for work.
Regardless of the chosen measure, our key takeaways stand: (1) the labor market has improved only slightly from the worst times, and has done so at an incredibly slow rate; (2) the recent decline in the official unemployment rate is not a reason for celebration since it is largely for the “wrong” reasons.