U.S. Unemployment May be a Bigger Problem Than Government Statistics Say
By Don Miller
Associate Editor
Money Morning
The dismal U.S. unemployment numbers have gotten more airtime recently than Jerry Springer.
And why not?
The numbers are mind-numbing.
- A total of 2.6 million jobs lost in 2008 – the most since World War II.
- A jobless rate that’s at 7.2% – and climbing.
- About 11 million people out of work.
As usual, however, the “official” numbers don’t tell the entire story.
“People say that they know how bad the economy is. But they don’t know how it feels to have the reality hit home,” said Stu Schweitzer, global markets strategist at J.P. Morgan Chase & Co.’s Private Bank (JPM). “It’s not the facts — it’s how the facts feel. And it feels terrible to have so many Americans losing jobs, and so many more likely to follow in the coming months.”
As it did last week with the government’s inflation statistics, Money Morning will now take an in-depth look at how the U.S. jobless situation may be a lot worse than the U.S. government statistics appear to show.
And “how it feels” comes home to roost with a behind-the-scenes look at the dramatic impact those horrific numbers have on the lives of just a few people caught in the crossfire.
Government Unemployment Numbers — Not What They Seem
The official government estimates of the current unemployment problem are staggering in their own right.
- 791,000 manufacturing jobs were lost in 2008, hitting the auto sector hardest.
- 260,110 people lost jobs in the financial sector, part of the overall service sector that accounts for some 80% of all employment.
- The construction sector shed 899,000 since peaking in September 2006.
- The retail sector shed 522,000 jobs for all of 2008.
All told, 2.6 million people lost their jobs in 2008. And, to underscore the accelerating nature of the problem, more than half of those job losses occurred in the final four months of the year. In December, a total of 11.1 million were unemployed. An additional 8 million people were working part time – up sharply from 7.3 million in November.
The average workweek in December fell to 33.3 hours. That’s the lowest average on record, dating back to 1964, and a sign of more job reductions to come since businesses often cut hours before eliminating positions entirely.
Those are the “official” government numbers. But, as a closer look demonstrates, the unemployment figures can be understated – and misleading.
The government actually compiles unemployment figures in six different categories; as you might expect, the numbers tend to minimize the bad news.
The most commonly number quoted in the media is the “official” unemployment rate – known as U3 (the bottom line of the three in the chart below) – which now stands at 7.2%.
But to get the real picture, you have to add both in what the government refers to as “discouraged” workers (U4) and “marginally attached” workers (U5) – those who have stopped looking for work, or who haven’t looked for work recently (represented by the middle line of the three in the chart). That number (U6) depicts an unemployment rate t that’s approaching an eye-popping 14%.
And it gets worse.
If you include the people that the government doesn’t even count – such as unemployed farm workers, the idle self-employed, and workers in private homes – the unemployment rate approaches an astonishing 18% (top line).
In other words, unemployment has insidiously spread to almost one-fifth of the U.S. work force, a number much larger than the single-digit figure commonly bandied about in the press.
If you regard unemployment statistics as an important means of gauging the overall health of a given economy, these “enhanced” statistics paint an ugly picture of just how painful this financial slump has become for the U.S. economy.
Layoffs of this magnitude are more than a mere shot across the bow of the economy; they’re actually a direct hit amid ship – below the water line, meaning that sinking is inevitable.
Fully 70% of all domestic economic activity is powered by consumer spending. People who are unemployed cannot buy homes, don’t shop heavily in retail stores, cut back on groceries, and are loath to take on added risk.
The numbers alone are bad enough. But in America’s heartland, many of the approximately 80% of workers thatarestill working are caught in the grip of unemployment vise as well.
No Runs, No Hits, Many Errors
Not only are record numbers of Americans suffering without jobs – they can’t even tell their troubles to a human being anymore. Most now have to navigate hard-to-use electronic systems, faceless entities that are ill-prepared to help so many people file for much-needed unemployment benefits.
With about 4.5 million Americans collecting jobless benefits, state government web sites and phone systems used to file for benefits are being overwhelmed by sheer numbers.
Electronic unemployment filing systems have crashed in at least three states amid an unprecedented crush of thousands of newly jobless Americans seeking benefits. Other states are adjusting their systems to avoid being next, The Associated Press reported.
Systems in New York, North Carolina and Ohio were shut down completely in early January by heavy volume and technical glitches. Labor officials in several other states are reporting higher-than-normal use.
And even some of the systems that are holding up under the strain are leaving filers on the line for hours before asking them to leave a message.
Still others are giving them the ultimate slap in the face: “We’re sorry, all circuits are busy.”
“Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated,” Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, told The AP.
To stabilize a phone system that has been overloaded for weeks, his agency boosted its staffing of telephone operators by 25% last month.
“We sympathize, we’re on their side, we’re doing our best to help them out,” he said.
Job Losses Gets Personal for Truckers
Depending on your geographic location, you might not notice when an automobile plant closes – but truckers do.
Any business closing – and the resulting layoffs – represents another loss of steady work for truckers, who are responsible for the movement of about 60% of the nation’s freight, including food and hard goods.
As many as 785 trucking companies with a combined fleet of 39,000 trucks went out of business in the third quarter of last year. Overall, more than 127,000 trucks, or 6.5% of the industry were idled in 2008, Donald Broughton, trucking analyst and managing director of Avondale Partners, told The Los Angeles Times.
That means tens of thousands of drivers previously on company payrolls are now competing with the nation’s independent owner-operators for a piece of a fast-shrinking cargo pie.
Joe Rini, from Grand River, Ohio, recently bid $3,400 to haul a load of building materials to the Pacific Northwest for one of his best customers. Usually, the load would pay $4,400, but with possible competitors in mind, Rini lowered his bid and got the contract.
Still, before he could pick it up, another trucker low-balled him with a bid of $3,000. Rini declined to match.
“I didn’t want to bid that low in the first place,” he told The Times. “I start down that road and I’m out of business.”
Elsewhere, fleet operators who so far have managed to survive are putting increasing pressure on their sales force to maintain revenues.
Despite being in the hauling business since the 1860s, Ventura Transfer Co. of Long Beach, Calif. is feeling the squeeze.
“Gone are the days where you can own a trucking fleet and just rely on the demand of the marketplace,” said Brian Olsen, Ventura Transfer’s chief executive officer.
California Dreamin’ No More
Even though he’s had no trouble so far staying gainfully employed in California, Mike Reilly, a 38-year-old engineering contractor, is leaving his home state’s lemon groves and beaches for the foothills of Denver.
California has often been called the “promised land” since the days of the Gold Rush. But in 2008, many families gave up their California dream and headed elsewhere.
With an unemployment rate of 8.4% in November, and a record 236,000 foreclosures on the books in 2008, the Golden State has lost some of its allure.
Barry Hartz lived in California for 60 years before moving close to his son’s family in Colorado Springs. Despite recent price declines from a glut of foreclosures hitting the market, he laments the escalation of home prices in the early 2000’s, “to the point our kids…could not live in the community where they grew up.”
The number of people leaving California outnumbered those moving in by a net total of 144,000 in the first six months of 2008 – more than any other state, the Associated Press reported. For the first time ever the state could lose a congressional seat.
With the state facing a $42 billion budget deficit, further tax increases and education cuts were the last straw for Reilly, the engineer.
“You see wages go down and the cost of living go up,” he said. Years of rising taxes, unchecked illegal immigration and bumper-to-bumper traffic have convinced him to move on.
What’s Next …
Overall, 48% of all companies downsized in 2008, and a staggering 60% are planning reductions in 2009, according to a Society of Human Resource Management survey.
Economists predict a net total of 1.5 million to 2 million or more jobs will vanish in 2009, and the “official” unemployment rate could hit 9% or 10%, underscoring the challenges that new U.S. President Barack Obama will face and the tough road ahead for job seekers.
Obama has called the jobs losses “a stark reminder of how urgently action is needed” to revive the nation’s staggering economy. His administration is planning a stimulus package costing upwards of $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.
But unemployment is feeding into a vicious cycle that Washington policymakers are finding difficult to break. The jobless are now forcing almost all U.S. consumers – employed or not – to retrench for an uncertain future.
News and Related Story Links:
- U.S. Labor Bureau:
Labor Force Statistics from the Current Population Survey - AP Business:
Stocks slide after rise in unemployment rate - Los Angeles Times:
A tough time to keep on trucking’. - The Associated Press:
Calif. a dream no longer as residents bail.
- The Associated Press:
State unemployment claim systems overwhelmed. - Money Morning News Analysis:
The Obama Blueprint for Solving the U.S. Financial Crisis. - Wikipedia:
California Gold Rush.
Comment by Greg on 26 January 2009:
Unemployment is definitely a time bomb. What I don’t understand is how forecasts for this year are so low. If you take figures from the final four months of 2008 and extend them throughout 2009 you get 6,000,000 jobs this year!
Comment by Denise on 26 January 2009:
“Any business closing – and the resulting layoffs – represents another loss of steady work for truckers, who are responsible for the movement of about 0% of the nation’s freight, including food and hard goods.”
What is the correct percentage?
Comment by Uncle B on 26 January 2009:
Car Crisis Explained
Post (GRD) great republican depression, the remaining working population of America will drive Buick LeSabres and Cavalier-like cars made in China. These cars are a current-day reality on the streets of China, and await export to the U.S. on the docks of Shanghai as we speak! The elitist uber-rich shareholders of GM had GM America teach GM China how to build these cars using 85 cent and hour, Chinese peasant women, a supply of which is unending and self-regenerating in China. The Uber rich chose these women over the North American car builders for quite apparent economic reasons! The current “bail-out bullshit” is a smoke-screen devised by the Uber-rich bastards, to foist liablility for the large number of unemployed they intend to create, from the private sector, over to the public sector to relive themselves of any undue expenses, before they collapse expensive North American operations in favor of highly profitable Chinese and Asian operations. Remember, they now own both, are dumping the American white elephant, and the workers liabilities and all, for more profitable Asian production centers, so that they can be truly competitive with Honda, Hyundai and the like! It is a good, sound business strategy for the uber-rich shareholders, and by selling American stock and buying Asian stock, they slide away to new fields of immense profits, liability free as they collapse American corporations, and Yankee doodle gets it up the brown spot, hard, once again, and is left holding the bag!
Comment by Jai on 26 January 2009:
You left out a major group of unemployed persons: those entering or re-entering the workforce. New grads and new entrants to the workforce (US-born citizens only) need 2 million net new jobs per year for each year of this decade, and we have not accomplished once since 2000. Population growth — Boomlets born during the 1980’s at the rate of about 4 million per year keep pressure on the workforce.
Then there are those who took time out and need to return to the workforce, usually as they planned all along. Young moms take time off until the kids start school, people go back to school/grad school full-time intending to launch new or higher-level careers, people have to leave the workforce temporarily due to health or caring for a family member. None of them saw themselves as permanently departing the workforce.
Note that these figures assume ZERO immigration! These are just net new jobs needed for US-born adults.
Comment by Kip Walls on 26 January 2009:
Batra and Perot have been prediciting this problem a couple of decades ago. A few congressmen dropped out and chose not to rerun for office due to the plan Washington had in place since the 70’s or before and the backlash that would eventually happen once the Americans figured out what has happened. One Presidents family bought a 90,000 acre ranch in Ecuador a few years ago! Most have safe havens someplace!
Its starting to look like we need to save the local, state and regional banks and let the oligopolistic international banks fail!
We really need to manufacture what we consume and we need to buy American or not buy at all!
Pingback by Jutia Group - Market Jitters & Political Critters on 26 January 2009:
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Pingback by Treasury Secretary Geithner Confirmed, Begins Difficult Journey on 27 January 2009:
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Comment by K. Anderson on 2 February 2009:
A new domino effect to all of this is Health Care. With continued unemployment and people not continuing their health care coverage. Elective surgeries will not be done, which is mostly the bread and butter of the hospitals. For Hospitals to stay in operations, they are starting to close their ER’s around the country, due to admitting patients that can not pay. The Hospitals can not continue to take on all this dept. Medicaid has helped with this burden in the past, but that is being cut around the country.
Comment by James Yamaki on 2 February 2009:
Any way you spin the numbers, unemployment has skyrocketed in 2008. That is a fact and it is not going away for a while.
Comment 3 by Uncle B struck me.
Do you recall the bankruptcy of auto parts supplier Delphi? Delphi which was spinned off from GM had two separate entities: one in U.S. and the other in China.
GM funneled millions of dollars of its investment money into China to get it started because of low labor costs and other comparative economic advantages.
Well, when Dephi went bankrupt in the U.S. the talk was the Delphi operations in China will not be affected and will remain intact.
Now GM has a GM China producing Buicks etc. and doing lucrative business.
If GM U.S. goes bankrupt, will the bankruptcy affect GM China and will the assets of GM China be recovered in the bankruptcy? Our tax dollars are going to bail out GM, but through legal means will GM be able to keep its entity in China untouched?
According to Porter Stansberry, GM-US is going bankrupt because it is insolvent and have not been making money for the past 15 years. I think much of the money has been funneled to China to get the operations going there. And through legal protection it is able to keep it intact while the US entity goes bankrupt.
Going back to Delphi, is Delphi China still in business making parts for the auto sector with cheap Chinese labor at the expense of our high US labor?
Will this be the same direction GM heading? I see the same pattern evolving.
I can say these things because I witnessed the demise of the pineapple industry here in Hawaii. Both Dole Corporation and Del Monte Corporation left Hawaii for Thailand, Phillipines, and Costa Rica, respectively, because of cheap labor. Both Dole and Del Monte still exist. They are thriving in those countries. Do you hear of pineapple from Hawaii? It is gone. Basically, only one company is left and even sugar, our agriculture mainstay for one hundred years, went the way of pineapple. Only one sugar company is in business.
Hawaii pineapple and sugar workers were left out in the cold.
Most are working in the hotel industry now. My sugar plantation hometown is depressed because of lack of jobs. We don’t have any of the tourist business.
I am not saying it is good or bad. I am just stating my observations.
Comment by Kris BUnso on 8 February 2009:
bail out will be too little too late. check the history books my friend, we are headed for a depression…..
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