12/7/12 9:38 AM – Another Confusing Job Report

Hallelujah! The unemployment rate dropped to 7.7% and the economy added another 146,000 jobs. Way to go – we’re on our way, now!

But wait; there’s more.
1) A whopping 346,000 people dropped out of the labor force, shrinking the labor pool, making the unemployment rate once again look artificially low
2) The percentage of people working dropped again to a 30-year record low of 63.6%

So the economy actually lost jobs and unemployment actually went up. Below is a chart from last month showing on the percentage of Americans working. Add a new data point of 63.6% to the end of the line.

Also note that while the rate is higher than in the 40s-70s that is due to women entering the workforce in great numbers. The line falling since 2000 mainly represents men of working age that cannot find work, along with youth of both genders, more people retiring and more people going back to school.

I am not trying to be a curmudgeon, just trying to give you an accurate picture of what is going on in the economy because understanding that helps us to understand how to invest.

Another way to look at employment is to look at how many workers are underemployed or not counted at all.

Look at the chart below from Shadow Government Statistics. U6 (grey line) is the government-computed number that includes those working part-time who want to work full-time, i.e. the short-term discouraged workers. Notice that the gap between that line and the red U2 line, which is the official unemployment rate is really wide right now. That means many of those working are underemployed.

Now look at The blue SGS line above. This line estimates the number of long-term discouraged workers, who according to SGS, were defined out of existence in 1994. I think the SGS number is the best measure of unemployment in this country and it is not pretty.

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