Investors Should Delve beyond Dip in U.S. Unemployment Rate to Find True Picture

By Paul Dykewicz

This morning’s headline that the U.S. unemployment rate in November fell to 7.7%, its lowest level since 2008, may seem positive for investors until you delve into the data reported by the U.S. Bureau of Labor Statistics and realize the number of unemployed stayed around 12 million, while the ranks of the long-term unemployed who have been out of work involuntarily for at least 27 weeks was little changed at 4.8 million.

The reality of those numbers is that 40.1% of the 12 million involuntarily unemployed people in the United States have been unable to find work for more than six months. That data does not even account for a 0.2 percentage point drop to 63.6% in the civilian labor force participation in November, offsetting an increase of the same amount in October.

No matter what side of the political spectrum you support, you cannot be comforted by chronically high unemployment and people apparently becoming so discouraged that they are dropping out of the workforce. When people who want to work start giving up on their prospects of finding jobs, the situation reflects a loss of hope.

Another problem reported in today’s report by the U.S. Bureau of Labor Statistics is downwardly revised job growth numbers from October and September that gave the impression before the Nov. 6 presidential election that conditions were better than they were in actuality. Total non-farm payroll employment gains were revised down for October from +171,000 to +138,000 and for September from +148,000 to +132,000.

Even if we  assume the numbers were not manipulated for political reasons and that the U.S. Bureau of Labor Statistics is insulated from such pressures, the reduced employment numbers for October and September naturally raise the question about whether the 146,000 new non-farm jobs reported to have been created in November will be reduced downward in the months ahead, too.

With monthly employment growth averaging 151,000 since the start of the year, falling below the average of 153,000 a month in 2011, the November non-farm job gains show a clear loss of job-growth momentum.

Also in November, 2.5 million persons were “marginally attached” to the labor force, essentially unchanged from a year earlier. The data, which are not seasonally adjusted, reflect individuals who the federal agency described as not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. However, those people were not counted as unemployed because they had not searched for work in the four weeks preceding the survey, the Bureau of Labor Statistics explained.

Among the marginally attached people, there were 979,000 “discouraged” workers in November. That number was little changed from a year earlier when the unemployment rate was a full percentage point higher at 8.7%. Discouraged workers are persons defined by the agency as those not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in November had not searched for work in the four weeks preceding the survey for reasons such as school attendance or family responsibilities.

In addition, the number of persons employed part time for economic reasons, composing a group sometimes referred to as “involuntary part-time workers,” hit 8.2 million in November to show little change from October. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The latest employment numbers are a reminder for investors to look behind the headlines to avoid becoming too bullish at a time of reduced monthly employment gains, continuing chronic unemployment for 4.8 million people who want jobs and no meaningful progress among Washington lawmakers in slowing a soaring federal deficit.