Unemployment Rate – Dissecting the Numbers – ValueWalk Premium

Unemployment Rate – Dissecting the Numbers

Unemployment Rate - Dissecting the Numbers

48% of Americans called it the number one issue facing the country in last month’s CBS/New York Times poll. But how well do we really understand unemployment? Embarrassingly, we don’t—not with election year rhetoric reducing it to a political chess piece, and conflicting statistics muddying the waters.

 The data is dizzying. The Bureau of Labor Statistics alone releases three sets of unemployment data each month; the Department of Labor publishes weekly data on jobless claims that is presented in both state and U.S. configurations. It doesn’t end there. How about Gallup, ADP, and a wealth of other private agencies that either possess (or produce) data that serves as yet other indicators of unemployment?

 Confused yet? So were we. That’s why we set out to demystify the elusive and loosely-termed “unemployment rate.” Read our guide to differentiating the most frequently referenced statistics, and learn why we think that all unemployment stats should be reclassified as lagging, leading, smart, or specialized.

 Data Source #1: Bureau of Labor Statistics National Unemployment Rates (Lagging). The official unemployment rate is issued by the Bureau of Labor Statistics(BLS), which takes an uncommonly large sample of U.S. households to determine unemployment levels. All residents 16 years of age and older in 60,000 American households are surveyed on a monthly basis (this amounts to ~110,000 working aged individuals). The sample pool strategically rotates such that no household is surveyed more than 4 months in a row, and those surveyed are never directly asked whether they are unemployed (rather, they must answer a predetermined set of telling questins). BLS claims that its method is the most accurate, asserting that most studies of U.S. statistics sample only 2,000 respondents (just 1/30 of BLS’s sample group). It claims a population sampling error of only ~290,000 or 10%, which translates to below a 1% margin of error for the final unemployment rate. As of April 2012, BLS reported the unemployment rate at 8.1%. It is a lagging indicator because it reports only once a month and uses a meaningful and comprehensive definition of “unemployed.”

 Data Source #2: Department of Labor Jobless Claims (Leading). Though the Bureau of Labor Statistics falls under the Department of Labor, Unemployment Insurance (UI) claims (also known as jobless claims) shown on the main Department of Labor web site measure something different. Jobless claim volumes should logically be lower than unemployment volumes because they only measure those actively applying for unemployment benefits. Jobless claim rates do not take into account those who are not eligible for Unemployment Insurance, whether for reasons of expiration or for some other. Despite their imperfections, these metrics are relevant because many economists view them as a leading indicator of the job market. Whereas monthly BLS statistics measure unemployment on a lagging basis, measurements of new jobless claims measure the acceleration (and the deceleration) of joblessness at a higher frequency (weekly). Also, since they do not count the long-term unemployed, the smaller, more engaged pool that they measure makes them a less diluted indicator of the direction of the labor markets.

 Data Source #3: Independent Polling Agencies (Smart). Certain independent polling agencies take an alternative approach, developing statistically defensible polls that ask a “smarter” set of questions. For example, the Gallup Organization publishes an unemployment report that samples those 18 and older (in contrast with the BLS’s 16 and older) and takes into account concepts such as “underemployment,” as defined in its own terms. Current Gallup measures name the unemployment rate at 8.3% (0.2% higher than current BLS numbers), and some analysts look towards these alternative views for insights. Gallup is quick to urge onlookers not to compare its numbers to that of BLS, on the grounds that its own numbers are not seasonally adjusted.

 Data Source #4: Non-Polling Agencies with Related Data (Specialized). Other data, such as that found in the ADP Employment Report, have also become sources of note. As a payroll services giant, ADP has turned its access to data and industry expertise into a well-managed and highly-segmented set of statistics that indicate job market movements at a high level of sector-specific detail. The ADP report speaks authoritatively about fluctuations in large vs. small company unemployment, service vs. goods-producing, farm vs. non-farm, etc. Broadly speaking, its insights are most valuable because they are specialized.

Sources: Adpemploymentreport.com, gallup.com, bls.gov, dol.gov


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