Forget the official 8.2% unemployment rate. Take a hard look instead at what’s known as the U6 rate, which tracks not only those out of work but those who’ve essentially given up looking for work.
That rate stands at about 14.5%, or nearly double the official unemployment rate.
As economists digest the disappointing job numbers released Friday -- just 120,000 jobs added in March, well below expectations -- some say the U6 figure is the data point people should be focused on.
The official figure used by the Labor Department “leaves out a lot of people who’ve just given up,” said Aparna Mathur, a resident scholar and economist at the American Enterprise Institute.
The U6 number is derived from a household survey that includes people who are actually unemployed as well as those who haven’t looked for work in over four weeks, Mathur explained.
“If you’re unemployed and you haven’t been looking for work in the previous four weeks than you’re not considered part of the official unemployed,” she said. The U6 rate, meanwhile, “includes all of those people who are too discouraged to look for work.”
The 120,000 jobs added in March was the smallest increase since October and effectively killed momentum that had been growing in the labor markets since late last year. Forecasts had predicted nonfarm unemployment to rise by 203,000. The economy had added more than 200,000 jobs in each of the past two months.
The slowdown in employment growth last month likely reflected the fading boost from unseasonably warm winter weather.
Despite the falloff in March, the unemployment rate fell to 8.2% from 8.3%.
Analysts said the drop in the unemployment rate is directly tied to Americans who have given up looking for work and are no longer counted in the official unemployment figures.
One of the biggest obstacles to an economic recovery has been solving the problem of the long-term unemployed. According to a recent report from RBC Global Asset Management, the ranks of the long-term unemployed, or those out of work for 27 weeks or more, have soared to 7 million, up from 1 million in 2007 ahead of the onset of the financial crisis.
Mathur said about 43% of the 12.8 million Americans officially labeled out of work fall into the category of the long-term unemployed, “which is huge, we’ve never seen those kinds of numbers in any recession,” she said.
That problem is reflected in the U6 rate.
Mathur said the gap between the official rate and the U6 rate is usually about two percentage points. But in the wake of the financial crisis that followed the collapse of the U.S. housing market in 2007, the gap has widened to about seven points.
“Usually the difference is pretty low so it’s not something people have really focused on because there’s hasn’t been that big of a gap” she said. “The tremendous difference in this recession has been the long-term unemployed. The labor market hasn’t really recovered at all."