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writing for godot

Let’s Get Honest About the Real Economy That Most of Us Live In

Written by Leonard   
Thursday, 11 June 2020 04:43

Can we start with someone clarifying the calculation of the weekly Labor Statistics? The definition of the unemployment rate is:  The number of jobless U.S. adults (ages 16-and-up) divided by the number of Americans employed in the civilian labor force. [1].  That sounds simple enough.  The civilian labor force is the sum of the US unemployed plus the number of employed.  The current unemployment rate was recently published at 13.3%.  The drop in unemployment rate from April to May caused the DOW Jones Index to rise by 900 points when it was announced on Friday June 5.  Interestingly it had already risen by about 600-800 points just days before the June 5 announcement, a total of 1,500 points for the event.  This allowed Trump to claim: “It’s a stupendous number. It’s joyous, let’s call it like it is. The Market was right. It’s stunning!” It’s also Fake News!

Sometime after June 5, we found out that the Bureau of Labor Statistics (BLS) made a mistake. About a 2.5 million jobs creation mistake.  “The BLS said in its report that the true unemployment rate was likely greater than 16% due to a data mis-classification error. The agency determines the unemployment rate based on a survey of about 60,000 households. Nearly 5 million workers who were likely on temporary layoff (a furlough) in May — a statistic that increases the unemployment rate — were instead labeled as being “absent from work,” a category that includes workers on vacation, for example.” [2]

The unemployment number likely increased by 3-4 percentage points , it didn't decrease as reported...a 7-8 percentage point difference.  Too late, the market rebounded, there was joy in New York and Washington.  The 1% were thrilled.  The 1,500 point rise in the DOW was worth some $372 billion to some, but somehow I don’t think it was the 38-40 million people who are actually unemployed.

Getting back to my original question.  The BLS says the total number of people comprising the US civilian workforce is about 160 million.  They also say that some 38-40 million people in the US are unemployed [3]. Then the unemployed divided by the total workforce is 23-25%...the unemployment rate?  How does the BLS  state it is only 13.4%?  Is it because nearly forty million Americans have filed for unemployment and only about half have been processed (and perhaps the rest not counted)?  That does not lead to a very accurate calculation of the unemployment rate, which many experts say may be closer to 20-23% rather than 13%. Perhaps surveying 60,000 people out of 160 million and extrapolating noisy data to come up with the unemployment rate isn’t as accurate as counting the actual number of unemployed...they do file an application.

Given that these numbers have been influencing a fluctuating ½ trillion dollars in wealth on a weekly basis, you would think that accurate reports would be the order of the day.  It appears Trump still doesn’t believe there was an error on the June 5 jobs report, and he just continues to say the economy has recovered (another lie). The Fed just reported that the USA is in an official recession.  As Paul Krugman and other economists have made clear, “The stock market is not the Economy.” [4].  Either is a 100% error or an unclear understanding of the BLS calculation of the unemployment rate.

Perhaps we could ask a few of our US experts in economics to get together to develop  a small set of simple economic indicators, that can tell us how our economy is doing rather than having Trump constantly tweeting the level of the DOW and a series of inaccurate weekly reports on the unemployment rate.




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