UNEMPLOYMENT | Rising Long-Term Unemployed in July

The official unemployment number (U-3) of 10.2 percent in July is down 0.9 of a percentage point from June.

But the  number of long-term unemployed (U-1) is growing as Covid-19 extends into another month, from 2.1 percent in June to 5.0 percent in July. These are likely to be people with fewer skills or opportunities, who are less able to adapt to a new economic situation. This damage to the labor market is hard to repair. 

The broadest published measure of unemployment (U-6) in July is still 16.5 percent, nearly double what it was in March.

Table A-15. Alternative measures of labor utilization
HOUSEHOLD DATA (https://www.bls.gov/news.release/empsit.t15.htm)
Measure	Seasonally adjusted, percent
	July 2019	Mar. 2020	Apr. 2020	May 2020	June 2020	July 2020
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force	1.3	1.2	1.1	1.4	2.1	5.0
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force	1.7	2.4	13.2	11.6	8.9	8.1
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)	3.7	4.4	14.7	13.3	11.1	10.2
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers	3.9	4.7	15.1	13.6	11.5	10.6
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force	4.5	5.2	16.0	14.6	12.5	11.3
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	6.9	8.7	22.8	21.2	18.0	16.5

UNEMPLOYMENT | Local Rates Higher

June 5, 2020—New Yorkers have a feel for these things and they are surprised at a reported U.S. unemployment rate of 13.3 percent. Economic analysts surveyed by Dow Jones expected nonfarm payrolls to decrease by 8.3 million while their average estimate of the May unemployment rate was 20.5 percent.

The BLS actually reported this morning a 2.5 million increase in payrolls, the largest increase on record.

One explanation is that in New York City the unemployment rate might be much higher. Using a simple forecasting model based on April and prior months, the New York City unemployment rate for May would be above 20 percent, i.e., 21.6 percent.

Here are the May numbers for New York City and neighboring counties, as projected from prior months. All of these actual BLS numbers for May will not appear until close to the date when the national unemployment rate for June is released.

Unemployment Rates - U.S. and Local, May 2020
	U.S. Rate, %	Projected Local Rate, %
New York City	13.7	21.6
Nassau Co.	13.7	15.1
Suffolk Co.	13.7	15.7
Westchester Co.	13.7	14.1

Source: May unemployment rate from BLS. Projected

May local rates by CityEconomist.

For the future, New York City may outperform the rest of the country because it has been through the coronavirus mill earlier. It has just had its first day since March 12 without a confirmed coronavirus death.

(Hat tip to Dr. Jurgen Brauer, Geoffrey Hilton and Dr. Farid Heydarpour for assistance with the interpretation of the data.)

JOB NUMBERS | May Unemployment 13.3% (16.3%?)

June 5, 2020—Total nonfarm payroll employment rose 2.5 million in May, and the unemployment rate declined to 13.3 percent, the U.S. Bureau of Labor Statistics reported this morning.

However, the BLS includes a note by BLS Commissioner Beach noting that some misclassification occurred, making the unemployment number as reported 3 percentage points lower than it would otherwise have been:

If the workers who were recorded as employed but absent from work due to "other reasons" (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). Additional information is available online at www.bls.gov/cps/employment-situation-covid19-faq-may-2020.pdf.

(June 6 —See WaPo story, 11 am.)

The principal unemployment rate (U-3) is lower than many economists expected. The BLS warned in a May correction that because its survey is a sample of households during a specific period, unemployment claims data will not necessarily match up to the unemployment numbers. However, the BLS also reports different unemployment rates using a range of definitions.  U-6 is the broadest definition, taking into account those marginally attached to the labor force, including total employed part time for economic reasons. This rate was 20.7 percent, more in line with economists' expectations.

Forecasts had been for as high as 25 percent. The unemployment rate was 25 percent (or a smidgeon above) at its peak in the Great Depression. This rate occurred in the early months of 1933. 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.

But the following are examples of people who have gone on record as fearing that the May 2020 unemployment number announced this morning could be as high as 25 percent:

• Fed Chairman Jay Powell.
• Treasury Secretary Steve Mnuchin.
• Goldman Sachs.
• Forbes Magazine's Chuck Jones.

One of the backdrops to this was a 48 percent increase in bankruptcies in May.

Consensus: 20 percent. Most commentators, if they gave a projected unemployment number, were close to CNN's Anneken Tappe, who thought the rate will be most likely about 20 percent. Which is bad enough, and off the April chart.

To understand what is happening, behind the unemployment number itself, look at U-6 as well as U-3. U-6 is 20.7 percent. It includes people who are not in the unemployment numbers because they are marginally attached to the labor force or are employed part time for economic reasons.

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	13.3
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	20.7

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 is important to look at because of the number of Americans who are on the Payroll Protection Plan and other special programs that are keeping workers off the unemployment rolls.

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

UNEMPLOYMENT IN MAY | BLS Release Due Friday, June 5

June 3, 2020—On April 26, President Trump's economic adviser, Kevin Hassett, said that the U.S. unemployment rate will approach levels that occurred in the Great Depression. The Bureau of Labor Statistics releases the unemployment rate for May on Friday morning, June 5.

What was the peak unemployment rate during the Great Depression? It was approximately 26 percent in the second quarter of 1933—after the NBER reports that the formally defined Depression was over, as shown in the shaded area in the FRED chart below, covering the years from the second half of 1929 to the end of 1942.

Source: St. Louis Federal Reserve Bank, FRED chart, Unemployment rate, 1929-1942.

So how and when will we know whether this is a Second Great Depression or a Second Great Recession? One way is to watch the payroll numbers and ADP has reported a drop of 2.8 million jobs in May. That would ordinarily be a big shock, but when analysts were expecting a loss of more than 8 million jobs, it is a relief.

Mark Zandi of Moody's Analytics went so far as to say that the Covid-19 Recession is already over barring serious policy errors or a "second wave" of the virus. He also warned that recovery will be slow.

One problem with the numbers that are being reported by the Bureau of Labor Statistics (BLS) is that many workers believe they will get their jobs back when commercial enterprises are reopened. They are not working but are not looking for work while the pandemic is still in place.

Just to review how the BLS does its work: It contracts with the Census Bureau to do a monthly national phone survey. The Census Bureau asks someone in each surveyed household how many people are employed and how many are unemployed, i.e., not working and looking for work. The two numbers together are called the "workforce." The unemployment rate is the number of unemployed divided by the workforce. Although the sample is approximately 50,000 households per month, the surveyed population is a scientific sample to represent the nation and the numbers are extrapolated to counties and the nation.

We can despair of the numbers or look more closely at the range of unemployment numbers that the BLS now reports, as shown in the chart below covering the data through April 2020. These numbers provide information on how long people have been unemployed and whether some people are omitted because they have left the workforce for retirement, for care of children or seniors or disabled family members, or for study. (The current recession is being called a "Shecession" because so many female workers need to stay home from work to care for their children in Covid-19 conditions when schools are closed and using paid child care becomes more risky.)

Measure	Apr. 2019	Dec. 2019	Jan. 2020	Feb. 2020	Mar. 2020	Apr. 2020
U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force	1.3	1.2	1.2	1.2	1.2	1.1
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force	1.6	1.6	1.6	1.7	2.4	13.2
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)	3.6	3.5	3.6	3.5	4.4	14.7
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers	3.9	3.7	3.8	3.8	4.7	15.1
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force	4.5	4.2	4.4	4.4	5.2	16.0
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	6.7	6.9	7.0	8.7	22.8

Source: BLS, release of May 7, 2020.

Some of those who believe they are only temporarily unemployed will actually not find their job waiting for them. Their employer may not be able to weather the period of closure. New announcements appear daily of retailers and restaurants and drinking places that will not reopen. At the end of the Payroll Protection Plan (PPP), which is keeping some workers off the unemployment rolls, will the employer still be there, and ready to keep everyone on the payroll, or will post-Covid business reorganizations mean there will fewer customers or different employee needs? (The PPP was originally passed for eight weeks and today the House-passed bill to extend PPP to 24 weeks was passed by the Senate.)

The PPP is an approximation of the German Kurzarbeit (short-time working), which subsidizes up to 60 percent of salaries (67 percent for workers with dependent children) if employers maintain their payrolls in a recession or a drop in sales. The German subsidy does not require a special authorization; it is an automatic stabilizer. The program has spread to 20 percent of the German workforce, is considered highly successful and has been copied in at least six other European countries.

If we use the official unemployment number, U-3, April showed a rate of 14.7 percent. If we pay more attention to U-6, the unemployment rate in April was 22.8 percent.

What will the May unemployment number look like? The official U-3 rate may be kept lower by retirements, according to an April study, but the April U-3 number was more than 8 percentage points higher than the study predicted.

(Hat tip to Dr. Jurgen Brauer and Geoffrey Hilton for reviewing this post and making suggestions.)

JOBS | March Metros Index–93.8 and 73.1, Slower Growth

Metro Jobs in March showed a diffusion index of 93.8 for unemployment and 73.1 for payroll jobs. The BLS reported the numbers today:

Unemployment rates were lower in March than a year earlier in 342 of the 372 metropolitan areas, higher in 16 areas, and unchanged in 14 areas.... [Also,] 267 metropolitan areas reported over-the-year increases in nonfarm payroll employment, 96 reported decreases, and 9 had no change. The national unemployment rate in March was 8.4 percent, not seasonally adjusted, down from 9.2 percent a year earlier.

The trouble with this method of reporting is that the monthly data come in clusters of three. A diffusion index provides a single number showing how metros have done. Using the same weights as the Conference Board, the numbers that get better get a 1 and the numbers that get worse get a zero; the number of unchanged metros get a 0.5. That makes for an unemployment diffusion index of (342+7)/372 = 93.8 percent of metros showed a favorable direction.

But the corresponding index for nonfarm payroll jobs would be (267+4.5)/372 = 73.0 percent. In other words, in 73.0 percent of metros, payroll jobs showed a favorable direction (they grew). This doesn't sound so encouraging. Job growth is too slow.  

It makes a difference how the numbers are presented. If a single number fairly reports multiple numbers without much loss of information from the aggregation, the public is better off. Better public understanding of the data makes for better policies.