True Unemployment Rate Four-Tenths Above Government's Estimate

Introducing the Wall Street Greek Unemploy- ment Rate Estimate™ and our Under- Employment Rate Estimate.

We estimate the true unemployment rate at 9.2%, four-tenths of a point higher than the government's estimate for March. It's our view that disenchanted elderly long-term unemployed Americans have dropped out of the workforce, but might return if demand for employees increases. Certainly, a great many of them currently need to find income, or will need to in the near future, as savings and benefit streams prove inadequate to maintain long-lived and learned standards of living. Thus, we view true unemployment understated.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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True Unemployment Rate Four-Tenths Above Government's Estimate

Last month we audaciously stated the unemployment rate was understated by a good half of a percentage point. This month, even as many thought unemployment would increase as discouraged long-term unemployed Americans were expected to return to the workforce, the unemployment rate audaciously cut off another tenth of a percentage point.

So what the heck is going on here then? Has The Greek joined the ranks of the perennially pessimistic? Do we need to take a look in the mirror and reassess our perspective? I don't think so. We've been optimistic about homebuilders' shares, even while there is all the reason to continue to beat them down, according to housing stock detractors. We were positive on manufacturing when the economy was in a sinkhole. So, I don't think we've a skew to the dark side, not at all in fact!

Review of the Data

The Employment Situation Report for March 2011 showed an improvement in the unemployment rate to 8.8%, from 8.9% in February. You'll recall that we estimated true unemployment closer to 9.4% last month and under-employment still in the mid-teens. At this point, let's calculate underemployment based on available data, and then take a look deeper, and estimate what true unemployment and under-employment likely are, given the anomalous shrinkage of the labor force that should correct as job demand increases. I'll go ahead and call this the Wall Street Greek Unemployment Rate Estimate.

Under-Employment Rate

Calculating this month's under-employment rate: If we add back the 2.434 million (previously 2.73 mln.) displaced workers counted in March to the labor market, and include the 8.433 million (previously 8.34 mln.) underemployed part-timers in the unemployed count, adjusted unemployment improves to ((13.542M + 2.434M + 8.433M) / (153.406M + 2.434M)) * 100 = 15.66% in March.

Under-Employment Rate Trend:

March 2011: 15.7%

February 2011: 15.9%

January 2011: 16.1%

December: 16.7%

November: 17.0%

October: 17.0%

September: 17.1%

August: 16.7%

July: 16.5%

June: 16.5%

May: 16.6%

April: 17.1%

March: 16.9%

February: 16.8%

January: 16.4%

The Problem

Much of the criticism here and elsewhere of the Labor Department's data has been centered around a mysterious shrinking of the Civilian Workforce that occurred over a period of just a few months. That shrinkage conspicuously coincided with a dramatic improvement in the unemployment rate, from 9.8% just four months ago, to 8.8%, as reported for March 2011. But, over the course of the last two months, the civilian labor pool has actually increased, gaining 160K workers in March.

Behind this correction in the labor force must be one of just a few possible truths. One possibility is that folks had dropped out of the labor pool from November through January, as we have posited here; this could have occurred for a couple reasons at least. It may be due to the delayed unemployment insurance extension renewal in December, which might have driven some out of the umbrella of unemployment coverage and into low-paying employment that they may have otherwise avoided. Another possibility is that our highlighting of the mysterious drop led to a government fix of some sort of anomaly. I lean toward the first possibility, as I continue to have hope in my nation's leadership and people generally, however naïve that may be.

Due to the demographics of our nation, heavy with an aging population, there is pressure on it as folks retire. A great many of our aged Americans simply cannot afford to retire though. Indeed, this past weekend, CBS' Sunday Morning ran a story on the disenchantment of many unemployed older Americans. It is possible that these older folks have dropped out of the job market, having given up on finding work after many months of disappointment.

America's labor pool benefits from other factors though. We attract people from all over the world, and so immigration and graduation of the young into the working age, should do fine to offset and outweigh the affect of our retiring elderly. Though perhaps it's not enough to offset the anomaly we are seeing among disenchanted elderly now. Still, if we also include the many illegal workers crossing the borders from Mexico and Canada, well then it's clear that the labor pool is a growing one over the long-term, though perhaps more so on an informal basis. Over the long-term, we'll also have to account for the draw from our talented workforce into developing emerging markets.

Getting to the Real or Wall Street Greek Unemployment Rate Estimate

While the workforce grew by another 160K in March, that still leaves it 601K short of November's tally. However, a decline in the denominator is not a problem in isolation. The problem comes when we compare the change in the unemployed with the change in employed Americans over that same span. While 976K more people were counted as "employed" since November, 1557K less people were counted as "unemployed." Where did the extra unemployed people go to, some 601K unaccounted for Americans?

If we consider they may have retired (from both the labor force and unemployment), then we might find the difference. You see, we have 601K fewer folks in the labor force and a difference of 601K folks between the change in employed and unemployed. Have that many people really retired, fallen ill or died, or have many of them simply fallen off the radar, yet while remaining unemployed? Perhaps the growth in the labor pool over the last couple months is the start of the discouraged returning to look for work again, which would imply the unemployment rate could increase again as it normalizes.

The difference between the employment increase and unemployment decrease matches the 601,000 Americans no longer considered part of the civilian labor force. Therefore, we add back the 601K lost and unaccounted for Americans, and we find March's more likely unemployment rate, or the Wall Street Greek Unemployment Rate Estimate, sits at 9.2% (versus the government's 8.8%) and the Wall Street Greek Underemployment Rate Estimate at 16.0% (against government's 15.7%).

It's important to note though, that while our estimates for unemployment and underemployment are higher, we are also marking an improving trend. Our unemployment calculation for March at 9.2% marks a two-tenths of a percentage point gain over February's 9.4%. Also, our under-employment estimate for March, at 16.0%, marks an improvement over February's 16.3%.

Wall Street Greek Unemployment Estimate Trend for 2011:

March: 9.2%

February: 9.4%

January: 9.2%

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