The Real Unemployment Story

Last week, the Labor Department announced that we lost an additional 80,000 jobs, keeping the unemployment rate at 10%. This was much worse than expected; many felt that we would add jobs in the final months of 2009.

But as bad as the story looks on the surface, the actual story is much, much worse.

Remember, in October the unemployment rate was 10.4%, in November it was 10.2%. So how did it drop to 10.0% in December, while we added NO JOBS?

Simple. The unemployment rate is the percentage of the LABOR FORCE that is unemployed...in other words, of the people that are looking for a job and want a job, the percentage that don't have a job. What happened? Simply put, many people gave up on the job market, and are no longer looking for gainful employment. 661,000 people, on top of the 80,000 newly unemployed, gave up even looking for a job in December.

Let us put it this way. If these people did not give up and leave the labor market, the unemployment rate this month would be...10.4%. And if the same number of people that were in the job market in August, just 4 months ago, were still in the market, our current unemployment rate would be over 11%.

A more accurate value is the total unemployment/underemployment number. Referred to as the U-6 rate rate, this combines the basic jobless rate, discouraged workers, and part time workers. This rate climbed to 17.3 percent, a new high. And the average duration of unemployment rose to a record high 29.1 weeks.

Politically, these numbers could be earth shattering. First of all, even assuming the economy recovers as expected, the numbers are going to be ugly. For example, as the economy gets better, more and more people who have previously given up on finding work will enter the job market...and thus, the unemployment number will initially increase, not decrease. Also, the one number that may improve, the GDP number, means nothing in relation the the unemployment rate, which has direct and personal meaning to every American. So there is no statistic for the administration to fall back on.

What does this mean for the 2010 election? Since 1962, the average House midterm loss for the president's party when his approval is sub-50 percent is 41 seats. The GOP needs 40 to take the House. And Obama, right now, is hovering in the high 40% range.

And things could get even uglier. Several Democratic economists are predicting 10.8% unemployment...in October 2010. If that is the case, no one can predict how ugly the 2010 election can get.