January 8, 2021

The unemployment rate was  unchanged in December at 6.7% after having fallen 0.2% in November.  After having jumped 10.3 percentage points in April from 4.4% to 14.7% the unemployment rate fell sharply in each of the seven months before leveling off in December.  The labor force rose 31 thousand in December.  Employment rose by 21 thousand..  As a result, the number of unemployed workers rose by 8 thousand in December.  Payroll employment declined by 140 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.

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.

There are also a number of part time workers who say they want full time employment.

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 from 8.7% to 22.8%, but then declined somewhat every month since then and now stands at 11.7%.  Full employment for this measure of unemployment is somewhere around the 8.0% mark.

The youth unemployment rate jumped 0.9% in December to 12.5% as many of the laid off people in December were in the leisure and hospitality industries were in that age category.

Given the steady gains in the aggregate hours index we look for GDP growth of 7.0% in the fourth quarter after having surged by 33.4% in the third quarter..

Stephen Slifer


Charleston, SC