The Employment Situation is Worse Than You Think (and so are the Consequences)

The official unemployment numbers released by the U.S. Department of Labor are a lie and the government knows they are a lie, but they tell the lie anyway because they want to avoid mass hysteria. These are the numbers for June, 2009:

 An additional 467,000 jobs were lost in June. (This is the preliminary number. It will be revised in about a month.) This was particularly bad news because economists had predicted 363,000 jobs would be lost. In addition, many economists had cited the slowing pace of job losses as a sign that the recession was ending. New, higher unemployment numbers suggest that optimism may have been a little too optimistic.

 The average work week fell to 33 hours, the lowest since 1964.

 The Bureau of Labor Statistics breaks the unemployment numbers down into “alternative measures of labor underutilization.” (You’re not unemployed, you’re underutilized.) 

  •  ”U-1″ is the most limited category of unemployed persons as it only includes people unemployed for at least 15 weeks.
  •  ”U-2″ includes only people who involuntaryily lost their last job, either through layoff or by completing a temporary assignment.
  •  ”U-3″ is the official unemployment rate and reflects “unemployed” people who are actively looking for work. For June, 2009, there were 14.7 million unemployed persons, or 9.5% of the working population. This is the highest unemployment rate since late 1982.
  •  ”U-4″ reflects “discouraged workers.” (Unemployed people who have quit looking for a job.) This adds an additional 800,000 workers which raises the unemployment rate to 10%.
  •  ”U-5″ reflects “marginally attached workers.” (Unemployed workers who want a job, are available to work now and have looked for a job in the last year, but not the last month.) This adds an additional 4.4 million workers which raises the overall rate to 10.8%.

 According to the Bureau of Labor Statistics, U-4 and U-5 include “groups of persons neither employed nor unemployed.” (Only in Washington does that make any sense.)

  •  ”U-6″ reflects “involuntary part time workers.” (People who have a part time job, but want a full time job.) This adds an additional 9 million workers which raises the overall rate to 16.5%.

 A phenomenon we have seen more of lately is the person who lost their job in the tech industry and has been unable to find a job so they are free-lancing as a “consultant.” I am not sure how the unemployment statistics account for these people (or if they even do.) They are “self-employed” but would rather be employed because of the steady paycheck and benefits.

 My practice allows me to meet people with all kinds of jobs, in all kinds of businesses, from little mom and pop operations to the largest employers in our area. A trend we have seen more and more of in the last year is what we have come to refer to as the “less employed.”

  •  Several large employers have eliminated or reduced “shift differentials”, higher pay for working the evening shift instead of the day shift.
  •  Many employers have eliminated overtime. (Austin has several large manufacturers which have traditionally offered as much overtime as employees wanted to work.)
  •  Several employers have instituted mandatory “furloughs.” (Employees are required to take off a specified number of days per month without pay.)
  •  Several employers have instituted across the board pay cuts in lieu of layoffs.
  •  Several employers have stopped paying for health insurance, or are only paying a portion.
  •  Several employers have eliminated ESPP plans.
  •  Several employers have eliminated stock option grants.

 None of these actions have resulted in higher “unemployment” statistics, but all of these people are “less employed” in the sense that they have less income than they had previously, and many are not in a position to reduce major fixed expenses.

  •  Many of my clients are not in a position to sell their homes because they now owe more than the house is worth.
  •  Many of my clients owe more on their vehicles than their vehicles are worth. Due to economic conditions, there is less demand for both new and used vehicles. Less demand means lower values. (In 2007, 38% of new car loans had “negative equity” from a prior vehicle rolled onto the new vehicle.)
  •  Your mortgage company (or car lender) isn’t going to reduce your payment by 30% just because your income went down by 30%.

 I am not suggesting that you feel sympathy for people who still have jobs but are making less money. That’s not the point. 70% of U.S. economic activity is based on consumer spending. Unemployed people are obviously going to spend less because they simply have less to spend. Less employed people are less likely to spend, also, because they either feel constrained by their more limited resources, or they are afraid they will be the next one to get a pink slip. Someone who is concerned that he may soon be unemployed is far less likely to commit to the expense of a new home or major home improvement, is less likely to commit to a new car purchase (much less a toy like a boat or jet ski), and is less likely to even make “minor” purchases like a new big screen TV. All of this is evidenced by the simple fact that U.S. consumer saving has increased significantly in the last two years. People who are afraid save, they don’t spend.

 Until U.S. consumers truly feel that the economy has “turned around”, they are unlikely to increase U.S. economic activity by spending on consumer goods. Add the decreased availability of consumer credit, and you should not expect significant economic growth in the foreseeable future. (And for more good news, expect a future post on the coming real estate/mortgage crash. Not the one we have been experiencing, the new bigger, better crash that is still a year or two away.)


 Michael Baumer


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by Michael Baumer