Would Obama Prefer 7.1 Million Unaccounted for Jobless Americans Just Drop Dead?

By Markos Kaminis:

Major media is celebrating another decline in the flow of initial jobless claims today, but it’s missing the story on the long-term unemployed. It is certainly good news that new filers for unemployment benefits are declining in numbers as the weeks progress. However, it’s unacceptable that the long-term unemployed whose benefits have expired fall off the radar and are unaccounted for, and perhaps left to die.

The Department of Labor’s Weekly Initial Jobless Claims Report showed yet another improvement for the period ending March 9. Claims fell by 10K from the prior week and measured 332K. That was far below the expectations of the economists surveyed by Bloomberg, who in their infinite wisdom foresaw an increase this week to 350K. The four-week moving average for jobless claims illustrated the trend that both market and media seem to be celebrating today. The average declined by 2,750, to 346,750. Not coincidentally, the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were each safely in the green through early trading. The shares of employment services firms Robert Half International (NYSE: RHI) and Monster World Wide (NYSE: MWW) were relatively unchanged through 10:00 AM and better reflected the slow pace of hiring activity in this country.

The report is undoubtedly good news if you have a job. Your job security is improving. However, for those of you who have been unemployed for more than 27 weeks or longer, some 40% of the total unemployed count, the government doesn’t know you exist any longer. We’re assuming you’ve retired comfortably and are living out your last days without a care or concern. If you are still active, we expect you’ve started up a solar panel company after all of our efforts to make your sweet solar dreams come true.

The truth, though, is that those poor people have lost their homes, crammed into apartments with higher rent rates along with other struggling souls, and are either selling furniture on Craigslist or walking dogs under the table to keep from eating further into their savings. Otherwise, perhaps they are members of the mass of people, some 1 in 6 Americans, collecting food stamps and hopefully still being accounted for by the government as a result. Somehow, I doubt the accounting is perfect though. Have you ever been to one of these offices? From what I hear, you’ll feel better putting a pencil through your eye, especially if it’s a lead pencil (the poisoning will help); just imagine the Department of Motor Vehicles times ten and that’s what you would experience if you got the bright idea to try to collect food stamps or some other relief our taxes and our government provide for us… at least that’s what I hear. I invite you to share your experiences in the comment thread below for the enlightenment of the rest of us.

The Jobless Claims Report shows the total number of Americans receiving benefits of some sort under all programs actually increased by approximately 218K in the measured period ending February 23rd. However, at 5.6 million that figure was down sharply from last year’s 7.4 million. Certainly some of the difference in the count is represented by very happy Americans that are once again holding jobs. However, it also includes a bunch of people you might now inaccurately refer to as bums. Indeed, my latest analysis of the Employment Situation Report shows that there has been a significant change in the labor force participation rate over the last seven years. If we had the same proportion of our population in the labor force count today as we did in 2006, unemployment would be 11.8%, not 7.7%, and underemployment would be 18%! Furthermore, the trend in February would have been reported as deteriorated and not improved, as the government data expressed. That’s a tough chew, and it runs counter to the enthusiasm stocks are trading on today. The fact is that some 7.1 million Americans are missing. Are they assumed to be happily retired? Perhaps the government would prefer they just drop dead already?

It’s a good thing that big layoffs from large companies are declining in number, but we’ve still recorded big cuts at big firms like J.P. Morgan Chase (NYSE: JPM) and Citigroup (NYSE: C), and a little scrape at Goldman Sachs (NYSE: GS) recently. And the news from the nation’s small businesses has not been good, with the NFIB’s Small Business Optimism Index marking lower ground than the troughs of recent recessions this month. Small businesses do a lot of the hiring and firing in this country, so there’s little hope for the long-term unemployed who have been left to die. We need to address this issue by making it a priority in corporate America to prioritize Americans for jobs who have been unemployed longer; that’s if we care to revive our economy to its once super-healthy status. Government incentives to corporations which do so would be helpful in that regard. Those readers interested in critical analysis of data are welcome to follow along with this column.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A False Prophet – Unemployment is Really 18%

The stock market rallied Friday on a seemingly strong jobs report. However, I produced a detailed analysis at Seeking Alpha in the morning, which exposed the real unemployment rate closer to 18% than the 7.7% reported by the government. Furthermore, that truer figure actually deteriorated in February, versus the improvement reported in the government’s number. So at the end of the day, the rally in stocks was based on a false prophet in the jobs data. Just the same, I see stocks going higher from here.

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.

Index ETFs Ran on Friday

Index ETF	Friday’s Gains
SPDR S&P 500 (NYSE: SPY)	+0.4%
SPDR Dow Jones (NYSE: DIA)	+0.5%
PowerShares QQQ (Nasdaq: QQQ)	+0.1%
iShares Russell 2000 (NYSE: IWM)	+0.9%

The day was clearly driven by the Department of Labor’s monthly Employment Situation Report for February. On the surface, the report showed improvement all around. Nonfarm Payrolls increased by 236,000 on net in February, far better than the consensus projection of economists for 171K, according to Bloomberg’s survey. Private nonfarm payrolls (excluding public sector job creation) grew by 246K, again much better than the 195K consensus view. The Unemployment Rate was likewise better than expected, with the rate improving to 7.7%, from 7.9%, better than the economists’ consensus forecast for a lesser improvement to 7.8%.

But as I indicated in my detailed analysis of the jobs report, the U-6 Underemployment Rate is still 14.3%, though that was better than January’s 14.4%. However, I took a closer inspection of the data, and applied a blast from the past labor participation rate from 2006 to the civilian population, and found that some 7.1 million Americans may simply have fallen off the government’s radar screen when their unemployment benefits ran out. After all, even today, long-term unemployment accounts for 40+% of total unemployment.

Where do these people go after they fall off the radar, welfare? Many apply for food stamps, and may remain on the radar, assuming the government has its act together; I doubt it. I think they’re simply unaccounted for, and definitely so when they’re not collecting any benefits. Those same Americans aren’t spending money like they used to, and they represent a burden on the economy’s back. If you account for them, you get an unemployment rate at 11.8% and an underemployment rate of 18.0% - just see my report.

The stock buying celebration is likely to continue, given my data is not generally accepted to be truth. Some of that might be for good reason. After all, those high labor participation rates of the past may have been built on false premise. All those jobs that existed in the inflated real estate sector in construction and in mortgage brokerage probably should not have been there in the first place. You know Bank of America’s (NYSE: BAC) acquired subsidiary, Countrywide, and the mortgage businesses at IndyMac and Washington Mutual maybe shouldn’t have been so big. BofA, Citigroup (NYSE: C), Morgan Stanley (NYSE: MS) and J.P. Morgan Chase (NYSE: JPM) are still paying for them today. But maybe those folks would have found other work. After all, the employment rate was well under 5% for a very long time before the 2005 real estate surge. There’s also some validity in the demographic argument, with baby boomers retiring at a fast rate today. Even so, I expect the real unemployment rate is still significantly higher than the figure reported by the government.

Despite the false profit booked on Friday, I expect stocks to continue higher. Capital flows are just too massive to stop today, coming out of safe havens including money market funds, treasuries and precious metals. I authored a second piece at Seeking Alpha Friday which anticipated selling momentum would continue for gold, silver and relative ETFs. I’m speaking of names like the SPDR Gold Shares Trust (NYSE: GLD), the iShares Silver Trust (NYSE: SLV) and the Market Vectors Gold Miners (NYSE: GDX). However, my thesis was disrupted by a report published at Goldman Sachs (NYSE: GS) indicating gold could find strength over the next three months on a technical basis. I expect the factor behind the support Friday will fade and fall away, and the safe haven securities will find lower bottoms as a result.

From a broader perspective, recent economic data flow has exhibited some recession like symptoms. However, the market is looking ahead, as is appropriate for it, and it is anticipating better days. Only time will tell if the latest day’s profits were based on false prophets or not.

Corporate Wire
McDonald’s (NYSE: MCD) gained 1.7% on the day, despite reporting its third monthly same-store sales decline in five months. Sales were down 1.5% globally, but after adjusting for an extra day in the prior year period, sales were higher by 1.7%. The company’s U.S. business showed flat sales after the adjustment, which was just fine for investors concerned about the better burger threat to McDonald’s.

The day’s corporate drivers included the J.P. Morgan Gaming, Lodging, Restaurant and Leisure Management Access Forum, which highlighted presentations by Bally Technologies (NYSE: BYI), DineEquity (NYSE: DIN) and Domino’s Pizza (NYSE: DPZ). The day’s earnings schedule highlighted information from Ann Inc. (NYSE: ANN), Dolan (NYSE: DM), Fuel Systems Solutions (Nasdaq: FSYS), Genesco (NYSE: GCO) and iSoftStone (NYSE: ISS). Look for other reports from Arcos Dorados (Nasdaq: ARCO), BPZ Resources (NYSE: BPZ), Food Locker (NYSE: FL), Furmanite (NYSE: FRM), KMG Chemicals (NYSE: KMG), Memsic (Nasdaq: MEMS), Metalico (NYSE: MEA) and others.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

We Must Address American Labor Force Attrition & Atrophy

By The Greek:

The latest Weekly Initial Jobless Claims Report looks harmless enough to the casual reader, but upon closer inspection, it continues to reveal great attrition in the American workforce. It’s the reason why I recently suggested the real unemployment rate was closer to 11.8% than the government’s reported 7.9% rate.

Weekly unemployment insurance filings increased by 20,000 in the period ending February 16, but only rose to 362K. That’s mild enough for a market used to rates running nearer to 400K for what seems like the last decade now. Indeed, the claims count was just a few thousand higher than the economists’ consensus expectation for 359K this week, as compiled by Bloomberg. The four-week moving average for jobless claims reveals a less dynamic environment, with an 8,000 increase in the latest period, to 360,750.

However, what is bothering me today is the ongoing trend in American labor that is hiding the true state of affairs. A tragic number of Americans have been unemployed for far too long, with some 4.7 million Americans or 38% of the total unemployed count out of work for at least 27 weeks. The way the system works is that these people are counted for as long as they are letting the government know about their situation. They have incentive to do so when collecting unemployment insurance, either through the regular program or the extensions program. But if they are to continue to be counted post the expiration of their 99 weeks of extended benefits, then they must file for welfare or some sort of other government support and report their ongoing unemployment. I’m not even certain the government has its act together well enough to count people who remain in the system in this way.

So, as a result, what we have seen is a shrinking labor force count that a lot of economists want to attribute to demographics and the retiring of baby boomers (some 10K a day estimated). However, the employment participation rate has dropped too substantially too quickly, and I think it’s because of the factor I’m laying out for you here today.

In this weekly report, the Department of Labor offers information on the total number of Americans receiving benefits of some sort through all programs. Now, extended benefits are no longer being offered in any state to those Americans just now filing for their regular benefits. In the period reported, for the week ending February 2nd, the total number of unemployed Americans receiving a benefit of some sort was 5.6 million.

Please take a seat now as I report to you something very important. In the just reported February 2nd period, this number dropped by 307,848. Some will say it’s due to an improving American economy and retiring baby boomers, but it is surely also due to American laborers simply falling off the radar screen. It’s unfortunate and it angers me. We must get a good count of these people, so that the government can focus on helping them in some way, either through training programs or some sort of support if they are not receiving any currently. I have a great concern that many jobs lost as a result of the financial crisis may never be recovered, and that certainly will be the case if we do not go the extra mile here.

Now, there is a worker shortage in construction, as I heard from Toll Brothers (NYSE: TOL) during a recent investor conference I attended in Philadelphia. So, many of the long-term unemployed and some of the forgotten described herein will start to hear about new opportunities at homebuilders now. Though, builders recently backed off a bit in terms of their enthusiasm about prospective buyer traffic.

Also, there are small mortgage lenders hiring like mad now in order to fill the mortgage lender shortage that has arisen. It’s due to the destruction of so many firms through the real estate collapse, and the burden major mortgage lenders still bear today, especially Bank of America (NYSE: BAC), Citigroup (NYSE: C) and Morgan Stanley (NYSE: MS). Many of the day’s biggest lenders, including Wells Fargo (NYSE: WFC) and J.P. Morgan Chase (NYSE: JPM) are applying tighter standards today as well. But BofA and the others are also shy to lend more due to the size of their outstanding mortgage loan bases and lingering questions about MBS liability. Plus, the returns have not been very attractive, thanks to Federal Reserve created synthetic demand for MBS.

We need to get a good count of the real unemployment rate so that we may target those struggling Americans for training and other forms of support. It’s time for Americans to go the extra mile and to give our struggling brothers a leg up before they fall down for good. I believe if this situation were better understood, the SPDR S&P 500 (NYSE: SPY) and the SPDR Dow Jones Industrials (NYSE: DIA) would not be quite as hot as they have been this year. But the truth always comes to the surface, so we have an opportunity to preserve the situation if we act on long-term unemployment rather than stand by waiting for it to heal or go away.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The True Unemployment Rate is 11.8% Not 7.9%

America deserves to know what the true rate of unemployment is, and it’s probably a lot higher than the reported rate. The government’s data excludes many Americans who have fallen out of the labor force, and not by choice. Not including these people assumes many have chosen early retirement, but the number of lottery winners hasn’t skyrocketed, so we think it’s more likely that these people have simply fallen off the radar screen. When Americans stop receiving unemployment benefits, their key incentive to report their unemployment to the government is lost. But even as they don’t report as unemployed, they live like they are. In our calculations here, we’ve determined true unemployment is likely 11.8%, not the 7.9% rate just reported by the government. Underemployment is likely closer to 17.9% than the government’s reported U-6 figure of 14.4%.

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.

True Unemployment Rate

Starting with the Reported Data
Nonfarm Payrolls increased by 157,000 on net in January, and private nonfarm payrolls (excluding public sector job creation) grew by 166K, short of the 185K economists’ consensus. The Unemployment Rate was likewise worse than expected, with the rate increasing to 7.9% from 7.8%, against the economists’ consensus forecast for an improvement to 7.7%. So the employment situation deteriorated in January, and was poor even before adjustment.

Underemployment incorporates people who are not satisfied with their less than full employment and also includes those desperate Americans who are detached from the labor force. However, even the traditional underemployment rate misses what may be a significant number of Americans who are not working and would like to be. To uncover those forgotten Americans, we replace the current labor participation rate with the one that existed when unemployment was under 5.0% instead. It makes sense to use such a participation rate if you believe population growth and the maturing of Americans at least matches the number of seniors retiring by choice and Americans passing away prematurely. Obviously there are demographic trends at play here that may be skewing the participation rate, including the aging of the baby boomers which is costing participation. Still, because of the relevant issue of long-term unemployment in America today and workers falling off the labor force radar screen while still interested in working, I believe these adjusted figures provide an important perspective of the true state of American labor.

Under-Employment
The calculation of the under-employment rate, or the U-6 by government notation, takes into account the number of Americans working part-time for economic reasons and the detached workforce. Working part-time for economic reasons is equivalent to folks who would prefer full-time employment but have had their hours cut or have had to otherwise settle for part-time work. Detached workers are those Americans who have not recently looked for work, sometimes because they do not believe work exists for them today. In getting to the U-6 underemployment figure, we’ll need to include these groups of workers with unemployed Americans. If we add back the excluded 2.443 million displaced workers to the labor market, and include the 7.973 million underemployed part-timers in the unemployed count, January underemployment is found to be ((12.332M + 2.443M + 7.973M) / (155.654M + 2.443M)) * 100 = 14.4%. In December, the rate was also ((12.206M + 2.614M + 7.918M) / (155.511M + 2.614M)) * 100 = 14.4%.

This data can be skewed by any of its components. Starting with the denominator, the reported labor force count increased in January by 143K, which would dilute the numerator and moderate the unemployment rate. Note also that in January the number of detached workers decreased by 171K and the number of forced part-timers increased by 55K. It’s hard to say whether detached workers disappeared off the radar screen and or got part-time jobs or other work. Most importantly, the number of people reporting unemployed status was up by 126,000; it was also up in December by 164,000. That is an absolutely pure data point marking negative change in the employment situation. The end result of the changes in the component data netted into something less than significant enough to change the underemployment rate, versus the increase in unemployment reported in January.

Historically speaking, U-6 underemployment is improved, as you can see by the table here. However, this improvement may be for another reason (a bad one) which is unaccounted for by this data, and which we discuss in the paragraphs below.

Monthly Period	U-6 Unemployment Rate (Seasonally Adjusted)
December 2009	17.1%
December 2010	16.6%
December 2011	15.2%
December 2012	14.4%
January 2013	14.4%

What About the Forgotten?
I often talk about the great degree of long-term unemployment plaguing our nation today and how this has uniquely impacted reported employment data. The number of Americans unemployed for 27 weeks or longer was relatively unchanged in January at roughly 4.7 million. This represented 38% of the total unemployed count. The proportion is down from recent history, though it continues to reflect poorly on the state of labor. That’s because the longer people remain unemployed, the harder it gets for them to find jobs in their specialty fields due to eroding and outdated skill sets. I’m concerned that improvement in the proportion of long-term unemployment is partly due to Americans simply falling out of the labor force count rather than finding new work.

For this reason, it’s worth considering what the unemployment rate might be at labor force participation rates seen in the recent past. The labor force participation rate was 63.6% in January 2013. That compares against 66.4% in December 2006. Now, maybe that past participation rate reflected the excesses of the mortgage, construction and finance industries that resulted from greed and the fault of the rating agencies and those industries. Those faults are still bearing out in layoffs, like the significant cuts announced last year by Bank of America (NYSE: BAC) and again late this year by Citigroup (NYSE: C). Still, let’s calculate what the unemployment rate would be at such a participation rate, because if the economy had not been so disrupted by the financial crisis, perhaps those employed in the synthetically fattened fields might have found other work.

Applying the 66.4% rate to the noninstitutional population count in January 2013, we get a civilian labor force count of 162,456,232, versus the 155,654,000 reported (Note calculation error exists because of the seasonal adjustment to the labor force count. I’ve attempted to back into that adjustment and apply it to the theorized labor force count, resulting in this figure for the adjusted labor force: 162,506,691). After that adjustment, the difference from this January’s workforce count is 6,852,691 million Americans who would be added to the unemployed count as well. So if those nearly 7 million Americans have simply fallen off the radar, the true unemployment rate could be as high as 11.8% (not 7.9%), which is up from 11.7% in December 2012. Likewise, the real underemployment rate could be as high as 17.9% today, which is unchanged from December 2012.

Those are significant figures reflecting a poorer state of health for American labor and the economy than the government’s calculations. It’s clear that we need to continue to stimulate job creation in America. Despite much of the recently celebrated economic data, excluding the just reported GDP contraction in Q4 2012, we cannot ignore this fact. Given the message conveyed by the very important GDP and employment reports, an economic reality check has indeed been served to the nation.

The SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) have gained approximately 5.1%, 6.1% and 2.7%, respectively, year-to-date through January 2013. Fueled by massive capital flows and the removal of fiscal cliff fear and debt ceiling concerns, gains could continue. However, given these two important economic data points just reported, perhaps capital will be spread out to include lower beta bearing sectors and asset classes. The performance of employment services stocks Friday was mixed to modestly improved, perhaps reflecting the conflicting currents in the market. The shares of several of the nation’s largest employers, however, were decidedly higher, likely on those same capital flow and macroeconomic drivers discussed previously.

Stock	Friday’s Change
Robert Half Int’l (NYSE: RHI)	+0.7%
Korn Ferry Int’l (NYSE: KFY)	+0.5%
Monster Worldwide (NYSE: MWW)	-0.2%
Manpower (NYSE: MAN)	+1.5%
Wal-Mart (NYSE: WMT)	+0.8%
McDonald’s (NYSE: MCD)	+0.7%
Target (NYSE: TGT)	+1.2%
Sears (NYSE: SHLD)	+1.3%

The increase in the flow of Weekly Initial Jobless Claims last week also offered a reminder to investors who have perhaps overdone the celebration. However, remember that stocks will tend to lead the economy by approximately 6 months. In conclusion, the economic takeaway here should be that America’s unemployment situation could be significantly understated. Fiscal and monetary policy should thus remain supportive of economic growth, and job creation and small business support should be given highest priority.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

The Real Rate of Unemployment

Nonfarm Payrolls increased by 155,000 on net in December 2012, a number that perfectly matched against the consensus of economists surveyed by Bloomberg. The Unemployment Rate was likewise perfectly placed against economists’ expectations at 7.8%, and it was unchanged from November. But America wants to know what the real rate of unemployment is.

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.

Real Unemployment Rate

Years ago, we were one of the first columns to shed light on the concept of an underemployment rate, which incorporates people who are not satisfied with their less than full employment and also includes those desperate Americans detached from the labor force. Ahead of the presidential election, Mitt Romney was talking about another version of unemployment that we also suggested Americans consider. That figure used a labor participation rate from when President Obama took office, though we would look back further to when unemployment was under 5.0% instead. It makes sense to use such a participation rate, if you believe population growth and the maturing of Americans at least matches the number of seniors retiring by choice and Americans passing away prematurely. Obviously there are demographic trends at play as well like the aging of the baby boomers, but so much so soon? Because of the relevant issue of long-term unemployment in America today and workers falling off the labor force radar screen while still interested in working, these figures are likely closer to reflecting the true state of American labor.

Under-Employment
The calculation of the under-employment rate, or the U-6 by government notation, takes into account the number of Americans working part-time for economic reasons and the detached workforce. Working part-time for economic reasons is equivalent to folks who would prefer full-time employment but have had their hours cut or have had to otherwise settle for part-time work. Detached workers are those Americans who have not recently looked for work, sometimes because they do not believe work exists for them today. In getting to the U-6 “underemployment” figure, we’ll need to include these groups of workers with unemployed Americans. If we add back the excluded 2.614 million displaced workers to the labor market, and include the 7.918 million underemployed part-timers in the unemployed count, December adjusted unemployment is found to be ((12.206M + 2.614M + 7.918M) / (155.511M + 2.614M)) * 100 = 14.4%. In November, the rate was ((12.042M + 2.505M + 8.138M) / (155.319M + 2.505M)) * 100 = 14.4%, or the same misery.

This data can be skewed by any of its components. Starting with the denominator, the labor force count increased in December, which would dilute the numerator and moderate the unemployment rate. Note, however, that in December the number of detached workers increased by 109K and the number of forced part-timers decreased by 220K. It’s hard to say whether detached workers disappeared off the radar screen and part-timers got fired, or if these folks found work of some sort. Most importantly, the number of people reporting unemployed status was up by 164,000. The end result of the changes in the categories netted into something less than significant enough to change the underemployment rate, matching the message of the unchanged unemployment rate in December.

Historically speaking, U-6 unemployment is improved, as you can see by the table here. However, this improvement may be for another reason which is unaccounted for by this data, which we discuss in the paragraphs below.

Monthly Period	U-6 Unemployment Rate (Seasonally Adjusted)
December 2009	17.1%
December 2010	16.6%
December 2011	15.2%
December 2012	14.4%

What About the Forgotten?
I often talk about the great degree of long-term unemployment plaguing our nation today and how this has uniquely impacted reported employment data. The number of Americans unemployed for 27 weeks or longer was relatively unchanged in December at roughly 4.8 million. This represented 39% of the total unemployed count.

The proportion is down from recent history, though it continues to reflect poorly on the state of labor. That’s because the longer people remain unemployed, the harder it gets for them to find jobs in their specialty fields due to eroding and outdated skill sets. Many of us fear that improvement in the proportion of long-term unemployment is partly due to Americans simply falling out of the labor force count rather than finding new employment.

For this reason, some, including yours truly and more notably Mitt Romney, have been considering what the unemployment rate might be at labor force participation rates of the past. The labor force participation rate was 63.6% in December 2012. That compares against 66.4% in December 2006, which was the high for December since 2002. Now, maybe that participation rate reflected the excesses of the mortgage, construction and finance industries that resulted from greed and the fault of the rating agencies and those industries. Those faults are still bearing out in layoffs, like the significant cuts announced last year by Bank of America (NYSE: BAC) and again late this year by Citigroup (NYSE: C). Still, let’s calculate what the unemployment rate would be at such a participation rate, because if the economy had not been so disrupted by the financial crisis, perhaps those employed in the synthetically fattened fields might have found other work.

Applying the 66.4% rate to the noninstitutional population count in December 2012, we get a civilian labor force count of 162,248,400, versus the 155,511,000 reported (Note calculation error exists because of the seasonal adjustment to the labor force count. I’ve attempted to back into that adjustment and apply it to the theorized labor force count, resulting in this figure for the adjusted labor force: 162,357,396). After that adjustment, the difference from this December’s workforce count is 6,846,396 million Americans who would be added to the unemployed count as well. So, the real unemployment rate could be 11.7% (not 7.8%) if those nearly 7 million Americans have simply fallen off the radar. Likewise, the real underemployment rate could be as high as 17.9% today.

Those are much more significant figures reflecting a poorer state of health for American labor and the economy. Now, the trend would still seem to be improving, but the data would argue for continued stimulation of the economy by the Federal Reserve and through fiscal policy. The theme of this article is to simply show what real unemployment might be, and not to get deeper into resulting fiscal and monetary policy consequences and strategy, but perhaps we’ll expand upon this in upcoming work for you. It’s clear that we need to continue to stimulate job creation in America so that we can support and grow consumer spending and personal income, and in so doing raise revenues to support our nation’s needs and growth.

If we can accomplish this while at the same time reining in excess spending and gaining control of our debt, then we might maintain an environment supportive of business. An environment supportive of business is an environment supportive of the stock market. Thus, dignified decision making must overtake dysfunctional politics in Washington D.C. if we are to see the historical average gains of the market continue over the next several decades. Therefore, we must demand more from our politicians. Otherwise, the performance of the broader indexes, reflected in the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) will diverge from their historical gains. For this reason, today’s market is a stock-pickers’ market, but one burdened by the heavy weight of macroeconomic issues. To help to lighten that burden, we must continue to seek to spur job creation, because the situation is worse than it seems as indicated by the real unemployment rate.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Jobless Claims Sour Holiday Spirit

By "The Greek"

Weekly Initial Jobless Claims increased more than expected over the week inclusive of the holidays, leaving more Americans starting the new year unemployed. The increase was not much, but it will pull the four-week moving average higher. It’s also hard to blame the bad news on the fiscal cliff, though it may be indicative of new health care costs for small businesses. The result was that futures turned lower, and the SPDR S&P 500 (SPY) was off fractionally to start the day Thursday.

The government reported that weekly jobless claims rose by 10,000 to 372,000 in the period ending December 29. That’s a figure above the four-week moving average, thus acting to pull it higher to 360,000. While this data is not a staple forecast for economists due to its regular reporting weekly, the result was also above the economists’ consensus for 363K.

It’s not in the spirit of the holidays to lay-off employees, and the news certainly soured the new year for a good number of Americans. While the most dynamic event of the year so far likely affected construction spending (reported yesterday), I do not believe we can blame the fiscal cliff for the issue seen here in employment, as it was yet unresolved and uncertain last week.

However, the President’s health care programs are now the law of the land, and however we may feel about it individually, some small businesses are claiming that it’s a burden to their growth. Thus, if a trend develops for a higher rate of weekly claims, we might link it to higher operating costs indicated by some small businesses, which would be hard to bear given the less than optimal economic environment. This is not to say the health care program is not demanded by the majority of America, or needed, affordable or even a right of humanity. It’s just to say that it might cause a ripple (some on the right say tsunami) in the economic data flow.

Looking again at the report, the advanced seasonally adjusted unemployment rate held at 2.5% for the period ending December 22nd (lagged in reporting), with the number of unemployed up 44,000, to 3.245 million. The moving average here was likewise hiked to 3.224 million. The total number of Americans receiving benefits through all programs declined by 68,727, to 5.4 million, in the period ending December 15. I often make note here that this number declines for both good and bad reason, including an improving economy, but also due to folks just running out of benefits and dropping off the labor force radar screen.

Challenger, Gray & Christmas today reported that after three consecutive months of increased layoff activity, December Job-Cuts fell to the second lowest monthly total for 2012 (32,556). Indeed, major layoff announcements were hard to come by on the wire around the holidays but some smaller cuts were recently noted for companies including Goodyear (NYSE: GT). Earlier in the month, Citigroup (NYSE: C) said it would cut its workforce significantly. Otherwise, we might attribute cuts to small businesses, which employ the majority of the American workforce.

The shares of employment services companies are often studied for reaction to employment data, and they are mixed and only moving fractionally in either direction. The change in unemployment claims was relatively small, and reading into it for the broader market or the economy is a reach today.

Employment Services Cos.	Thursday Morning Move
Robert Half Int’l (NYSE: RHI)	-0.1%
Korn Ferry Int’l (NYSE: KFY)	+0.2%
Monster Worldwide (NYSE: MWW)	+0.2%
Manpower (NYSE: MAN)	-0.1%
Kelly Services (Nasdaq: KELYA)	+0.1%

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