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Investing Specialists

Is the Unemployment Rate Really 16.6%?

The U6 takes an already badly lagging economic indicator and puts it even further behind the eight ball.

The formerly obscure measure of unemployment known as U6 has garnered a lot of attention this recession. This data, from the Bureau of Labor Statistics, counts the conventionally unemployed (those able to work, available to work, not working at all, and who have looked for a job in the last four weeks) plus those working part time but preferring full-time work, discouraged job seekers who haven't actively looked for a job recently, and people who want a job but went back to school or took on family obligations, making them unavailable for work.

While conventionally measured unemployment peaked at just over 10%, the U6 unemployment rate peaked at well over 17%. (Both measures were modestly off their highs at 9.7% and 16.6%, respectively, in May.) Some pundits have used this much higher number as an indicator that we are rapidly approaching the 25% unemployment rate of the Great Depression. Others seem to imply that the U6 number is the real unemployment number and the conventional unemployment number is a smoke screen to hide how bad things really are. A recent Wall Street Journal editorial (the full article may not be readable without a subscription) indicated that a lot of the interest in the U6 statistic might be more political than economic, concluding that those on the far right and far left are trying to use the ugly U6 data to score political points.

I strongly disagree. The U6 number just adds a level of complication to the already difficult-to-interpret unemployment indicator. Furthermore, it appears to me that the U6 takes an already badly lagging economic indicator and puts it even further behind the eight ball.