MAY UNEMPLOYMENT ESTIMATES | 20-25%

U.S. Unemployment Rate, 2010-2020. The May figure was predicted to be
off the chart. [P.S. The BLS actually reports it defined to 13.3 percent.]

Thursday, June 4, 2020—Forecasters like to say: "If you give a number, don't give a date. If you give a date, don't give a number." Especially, don't forecast a definite number the day before.

However, these rules have been broken recently by people who have strong views about what the U.S. unemployment number will be at 8:30 a.m. tomorrow.

Scariest number: 25 percent. The unemployment rate of 25 percent is scary, because that (or a smidgeon above) was the peak unemployment of the Great Depression. This rate occurred in the early months of 1933. That would meet one test for deciding whether we are in the Second Great Recession or the Second Great Depression. The economy (GDP) has already suffered two quarters of decline. The big question is whether the decline will continue, which would be likely if the country saw a second wave of coronavirus infections. Paul Krugman has argued that to call what we are in a Depression would require four quarters of decline.

Most economic observers dismiss the idea that we are in a Depression, because they expect the economy to recover quickly as soon as coronavirus cases level off or a vaccine is developed that would allow the public to resume a normal life.

The following are examples of people who have gone on record as fearing that the May 2020 unemployment number to be announced in the morning will be as high as 25 percent:

• Fed Chairman Jay Powell (and it's his job to be well informed on the topic).
• Treasury Secretary Steve Mnuchin.
• Goldman Sachs.
• Forbes Magazine's Chuck Jones.

Consensus: 20 percent. Most commentators, if they give a projected unemployment number, are like CNN's Anneken Tappe, who thinks the rate will be most likely about 20 percent. Which is bad enough, and off the chart above. We will know soon enough.

To understand what is happening, behind the unemployment number itself, I recommend looking at U-6 as well as U-3.

Measure	Apr. 2019	Feb. 2020	Mar. 2020	Apr. 2020	May 2020
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)	3.6	3.5	4.4	14.7	20%? 25%?
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force	7.3	7.0	8.7	22.8	25%? 30%?

The number that is ordinarily reported is U-3. In 1933, that was the only number available. But U-6 provides details (insofar as any sample of 50,000 households in the U.S. economy can provide details) of people who are neither employed nor unemployed, an interesting group of potential workers.

The level of U-6 unemployment will bear careful watching because of the number of Americans who are on the Payroll Protection Plan and other special programs that obscure the data.

(Hat tip to Dr. Jurgen Brauer, Geoffrey Hilton and Dr. Farid Heydarpour for their assistance with this post.)