June 4 2021

The unemployment rate declined 0.3 in May to 5.8% after having risen 0.1% in April.  After having jumped 10.3 percentage points in April from 4.4% to 14.7% the unemployment rat has been steadily declining but it now appears that employers are having difficulty finding the workers that they need.  The labor force fell by 53 thousand in May.  Employment rose by 444 thousand..  As a result, the number of unemployed workers declined by 497 thousand in May.  Payroll employment rose by 559 thousand.  How come the two estimates of employment are different?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey. But, in the end, there is just monthly noise between the two series with  the household survey being the more volatile of the two.  So while the labor force declined slightly in May one should not get too excited by this single-month event.

While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of these workers has declined steadily since the recession ended in April of last year, but has leveled off in the past month or two.  It is still a lot higher than it was prior to the recession.

We should probably be focusing more on the broadest measure of unemployment because it includes all of these underemployed individuals.  The broad rate jumped by 14.1% in April 2020 from 8.7% to 22.8%, but then declined steadily and now stands at 10.2%.  Full employment for this measure of unemployment is somewhere around the 8.0% mark.  We expect it to fall to the 7.1% mark by the end of this year.

Given the steady gains in the aggregate hours index we look for GDP growth of 10.0% growth in Q2, and 8.0% GDP growth for the year as a whole.

Stephen Slifer


Charleston, SC