Tag Archives: Yellen

Revised Post #2 Unemployment Numbers: The Real Story

There has been a lot of talk lately about the unemployment numbers as they have been decreasing and point to a country recovering from the Great Recession as they have fallen to 5.7%. As Josh Mitchell writes in his Wall Street Journal article Job Market Looks Ripe for Liftoff, “The best three-month stretch of hiring since 1997 has positioned the U.S. labor market to start delivering stronger wage growth for a wider swath of Americans after more than five years of sluggish recovery from a deep recession.” While these numbers may look like things are all merry for Americans, they hide the real story. The real story is that a lot of Americans have taken themselves out of the job market because they are either too distraught about their job prospects, or are hidden behind the numbers of what is considered employed. To not be counted in the unemployment number, you just have to have been out of the work force and not looking for work over the past 28 days. These people who are so depressed from how long they have been looking for work, and not found anything, that they remove themselves from the work force are still as unemployed as before, but they actually IMPROVE the unemployment rate. Another hidden loophole of the official unemployment statistic provided by the U.S. Department of Labor is that if you are working part time, only 10 hours per week, you are considered employed and reduce this official statistic. There are millions of Americans who cannot find fulltime employment and are forced into working only part time, but are considered employed by the US government. Another loophole that Jim Clifton is trying to bring awareness to with his highly publicized article, The Big Lie: 5.6% Unemployment, “There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%.” This little discrepancy was unbeknown to me before I read his article. This is just further proof that “The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.”

This problem could have long-term consequences by making our economy appear better than it truly is because the Federal Reserve uses this statistic (among many, many others) when they decide whether or not to raise interest rates. We need a better statistic to rely on, which more thoroughly represents the entirety of the United States population than this current method. This is of pressing concern so that we don’t overestimate the health of our economy just to have it crumble again.  This can be accomplished by having the Fed set policy based off of the underreported U-6 Unemployment rate which takes into account “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” (from the Bureau of Labor Statistics). This number better covers the entire population of workers and better represents the entire job force as a whole. This number is currently 11.3%, significantly higher than the 5.7% reported officially. The Fed should tie all of its monetary policy and economic gauge measurements to this U-6 number so that more of the unemployed are represented. This 11.3% is still significantly higher than it has been in over 20 years (see figure below). Let’s hope that Janet Yellen realizes this and uses this, more useful, U-6 unemployment statistic when she moves to rise rates this summer.

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The Waiting Game

“The Federal Reserve signaled this past week that it is unlikely to raise short-term interest rates until at least June” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

This came as a surprise to most people, it seems, but I am not completely surprised based on the underlying motivation of the Fed.

“…The Fed will raise interest rates only when it is confident that the economic recovery is robust and companies have regained the ability to raise prices” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

Although it seems that the Fed is not in touch with everyday citizens, like you and I, I believe their decision to delay the rise of interest rates is in tune with the best interests of everyday citizens. Although we have been told for a while that the recession is over, it seems that from the perspective of everyday people that is not necessarily the case. It seems like the wealth of the upper class has been rising since post recession, but the middle class and below has not had the same fortune.

The Federal Reserve clearly believes that the economy is not in full rebound yet, hence the delay of raising rates until mid summer. I am happy with the decision the Federal Reserve made, their focus seems to be more on the well being of everyday Americans, rather than worrying about creating high returns for investors. This is not really the common perception of the Federal Reserve; most people seem to think they do not have to best interest of the people in mind. There seems to be this notion or belief that the Federal Reserve is just a group of wealthy bankers in an ivory tower playing with everyone’s money, acting according to the best interest of a few. Their recent decision, however, points to the opposite.

“…Investors seemed mildly disappointed when the Fed reiterated on Wednesday that it would remain “patient”” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

Although investors seem to be upset with the Federal Reserve’s decision. Most people are not investors so this decision by the Fed to not act does not affect them in the same way as those who speculate based on the Fed’s actions.

“More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being, according to a Bloomberg National Poll” (http://www.bloomberg.com/news/articles/2014-03-12/stock-market-surge-bypasses-most-americans-poll-shows).

Bull market is a term used to signal positive beliefs about the market, while bear market is used to signal the exact opposite, pessimism towards the market. Although the stock market, like explained above has been labeled a bull market for the past five years, this has not improved the financial well being of everyday Americans, most who do not own stocks, or at least not a significant amount anyways. With the lower and middle class of America still struggling, it seems that the fed made the appropriate decision to delay raising interest rates.

“Don’t worry about the Fed; be happy” (http://blogs.wsj.com/moneybeat/2015/01/30/fed-up-do-rising-rates-matter-after-all/).

You can be happy; the Fed seems to be thinking about you and I, not just the wealthy elite.