U7 Unemployment Rises Again: How Little We Know

BY Paul Solman  August 3, 2012 at 9:48 AM EDT

Jobless veterans
Viewed on a computer screen, jobless veterans take a class at the new Workforce1 Veterans Career Center on July 31 in New York City. According to the Bureau of Labor Statistics, the unemployment rate for all veterans in June was 7.4 percent. Photo by Spencer Platt/Getty Images.

According to the modestly titled “Solman Scale,” our all-inclusive un- and underemployment number, U7, rose again in July and is back up to 17 percent. But the more important punchline may be the reminder of just how incomplete our picture of the U.S. labor market actually is.

Making Sense

Today, as on the first Friday of every month, came the job data from the Bureau of Labor Statistics, derived from two completely separate surveys: of U.S. “establishments” which report their payrolls — and of U.S. “households” which report the employment status of their inhabitants. According to the “payroll survey,” the U.S. economy added 163,000 jobs in July. Downward revisions subtracted about 6,000 jobs from the previously reported totals in May and June but still, 163,000 was better than expected and stock markets in Europe and stock futures in the United States rose on the jobs data. Or so says the consensus.

July Unemployment and the U7 Solman Scale

But, according to Americans surveyed in the privacy of their own homes — the usual sample of 60,000 households — 200,000 fewer Americans were employed this month than were employed last.


“Why Did Unemployment Rate Increase?” asks the Wall Street Journal in its online headline. Answer? It has no idea.

“The two reports often move in tandem,” writes the Journal’s Phil Izzo, “but can move in opposite directions, especially in months such as July where there are big seasonal issues at play.”

There is no explanation of what those issues might be, however, or why the reports can move in opposite directions. Want to know the real reason? Because they’re statistical samples and we have no idea as to how accurate they really are, especially, as we regularly point out here on Making Sen$e, for any given month.

Over at the New York Times, the headline reads: “Pace of Hiring Rose in July, but Jobless Rate Ticked Up.” In other words, headline as oxymoron. The typically astute Catherine Rampell then proceeds to latch on to the affirmative, sort of:

“The American economy continued its long slog upward from the depths of the Great Recession, adding 163,000 nonfarm payroll jobs in July, the Labor Department said on Friday. That compares to a revised 64,000 jobs in June. [Revised down by 16,000, she might have noted.]

“July’s job growth was higher than economists had been expecting, but still signifies the economy is just barely treading water. For context, the economy now produces as many goods and services — more, in fact — than it did before the downturn officially began in December 2007. But it does so with almost five million fewer jobs.”

And what about the headline discrepancy?

“The pace at which the economy has been adding jobs in the last few months is just barely fast enough to absorb the growth in the labor force. As a result, the unemployment rate remained mostly unchanged, ticking up to 8.3 percent from 8.2 percent.”

The first sentence is true. The second is not. According to the household survey, from which the numbers come, the unemployment rose because 200,000 more people said they were unemployed. (See above.) Which contradicts the payroll survey.
My favorite morning headline comes from the Financial Times, which simply finessed the contradiction with “U.S. labour market stabilises.” What that might mean is anybody’s guess.

One bit of positive data from the household survey, if one month’s worth of data can be relied upon at all: The duration of unemployment seems to have dropped.

Bottom line: I don’t know what to make of today’s numbers. I doubt anyone else does either. But given the rise in U3 — the headline BLS unemployment number — and in our U7, I certainly wouldn’t be as upbeat as the stock market was when it opened.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions