David Rosenberg's Explanation Why The Real Unemployment Rate (U-3) Is 12%

Tyler Durden's picture

Pretty much  precisely what we noted earlier today: "A couple of behind-the-scene facts: from October to February, an epic
700k people have left the work force. If you actually adjust for the
fact that the labour force participation rate has plunged this cycle to a
27-year low the unemployment would be sitting at 12% today. Moreover
the employment-to-population ratio —
the so-called “employment rate” —
stagnated in February at 58.4% and is actually lower now than it was
last fall when “double dip” was the flavour du jour."


The widespread reaction to the jobs report today is uniformly positive. I think a dose of reality is really needed here. It may as well come from this pen. The headline print of +192k was in line with published estimates but following the slate of ISMs and the ADP report, the “whispered” number was closer to +250k. Of course, there were the upward revisions to the back-data that showed net gains of +58k so one could easily respond that adjusted for these, the topline did indeed meet these “whispered” estimates. The employment diffusion index jumped to a 13-year high of 68.2% from 60.1% in January, but beware of peaks and troughs in this index (i.e. it would have been a mistake to extrapolate the 17% low in this job dispersion measure at the March 2009 market trough).

Here is what I think is important: because of the winter storms, we really have to average out the past two months. So the January-February average for payrolls is +128k. Allowing for a similar reading in March that we received in February would generate an average increase for the first quarter of around 150k. That is little changed from what employment gains averaged on a monthly basis in the fourth quarter. So while we are seeing positive job growth, it is not accelerating even though we are coming off the most intense impact of the fiscal and monetary easing that was unveiled late last year. In other words, we are disappointed with what is still a lacklustre trend in net job creation, particularly in view of the peak stimulus we are currently experiencing.

What if Q1 is the peak for job growth? If you remember, we ended up with sub-3% GDP growth in the fourth quarter, which is about half of what we should be seeing at this stage of the cycle. And if we are generating jobs at a similar rate in the current quarter, barring a re-acceleration in productivity, growth again will be below 3% at a time when the consensus is closer to 3.5%. But more to the point — what if this represents the peak for the year? Because if there is one thing we do know, it is that this quarter contains all the incremental policy easing impact on the macro data.

What was particularly discouraging was the fact that both the wage number and the workweek were flat. Nominal wages, in fact, have been stagnant in three of the past four months. Weekly average earnings have also been flat or negative in three of the past four months. How on earth can these statistics possibly be viewed as bullish for the economy? The year-over-year-trend in average weekly earnings in the past three months has softened from 2.6% to 2.5% to 2.3% today. At the same time, it is probably reasonable to assume that surging food and fuel costs will bring headline inflation to, and possibly through, 3% in coming months. In other words, the growing risk of falling personal income in real terms, even with the positive growth in payrolls, is a glaring yellow light as far as the consumer spending outlook is concerned.

Aggregate hours worked only managed to tick up 0.2% in February after a flat January. That is total labour input — bodies and hours. So assuming a trend-like productivity performance, we are talking yet again about sub-3% GDP growth, which by itself is okay but considering the peak impact of all the fiscal and monetary steroids being administered this quarter, it is actually disappointing.

Yes, the unemployment rate dipped again to a 22-month low of 8.9% from 9.0% in January and the nearby high of 9.8% in November. This reflected a 250k risein Household employment — the third increase in a row — and a flat participation rate. A couple of behind-the-scene facts: from October to February, an epic 700k people have left the work force. If you actually adjust for the fact that the labour force participation rate has plunged this cycle to a 27-year low the unemployment would be sitting at 12% today. Moreover the employment-to-population ratio — the so-called “employment rate” — stagnated in February at 58.4% and is actually lower now than it was last fall when “double dip” was the flavour du jour.

All that matters in these employment reports is what the jobs environment means for income, because workers generally spend in the real economy. With credit harder to come by, and with fiscal policy soon to become more focussed on austerity, it is the income that the labour delivers that will prove to be the critical determinant of the economic outlook. So while the “spin” may be over near-200k headline payroll gains, another dip in the headline unemployment rate, the organic income backdrop can really only be described as tentative, at best, especially in real terms as gasoline prices make their way to $4 a gallon by the time Memorial Day rolls around.


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Cognitive Dissonance's picture

The truth is never obvious to those who are paid to look the other way or for those who are too frightened or willfully blind to look.....period.

Rogerwilco's picture

Right now I'm feeling like Pontius Pilate in that scene from "The Passion" where he washes his hands and mutters "Qui est veritas?" This week, and the past two months for that matter, make no sense.

RunningMan's picture

Just the last two months? I feel like the last three years (!) don't make sense. Print some paper to cover up the shadow banking collapse, control the media to prevent anyone from expressing a mood other than wild optimism, punt the equity indeces to the moon, and watch the world burn.  I mean seriously - this was the plan?

Michael's picture

What can we do to get everyone who is unemployed to apply for a job so they can be counted in U3?

How can we get the word out using social networking sites to apply for a job that will be legitimately counted in the BLS statistics?

I apply for unemployment compensation every 6 months even though I know I will not get it because I am not eligible for it, just so I can be counted and not put in the U6.

What can we do?

Michael's picture

This could be a ZH "Project BLS Mayhem" activity all ZH's can participate in by spreading the word to do this.

We could have a sticky on the sidebar about it.

What can go wrong? Some people will find a job?

tellsometruth's picture

not the best idea but not the worst either...i like the free thinking though

FreeMoney Bernie's picture

and the bankers and money changers keep yelling give us Bernanke give us Bernanke

AN0NYM0US's picture

Rosie, it's really too bad that more people don't take your work seriously. I don't know why, maybe your 500 point rounding error on where the S&P was headed. Also Rosie what's your view on Drew Matus's perspective on the incredible shrinking labor force? 



PS don't lose heart Rosie - $4 gas may help to restore your credibility

CrashisOptimistic's picture

Your analysis and Matus' analysis is pathetically weak.

US population growth per year 1% or 3ish million people or about 280K/mo.

Number of people turning 65 per year is about 150K-200K/month from this link


This boomer retiring theory does therefore NOT explain loss of labor participation.  The number of people (from census.gov) aged 15-19 yrs is 11 million.  Age 60-64 is 7 million.  More enter the workforce from the low end than leave it at the top end.




AN0NYM0US's picture

I see what your mean, sorry for linking to Matus' perspective.  I guess he missed all those 15 year olds entering the workforce. I gotta be more careful with who I cite. That google answers seems like a great resource almost as good as wikipedia. Thanks again.

CrashisOptimistic's picture

Dood, even your sarcasm is weak.  And btw, BLS considers 16 the lower end of the workforce.  Not 18.  


The google answers data derived from census.gov.

Moron rev 2.0.

Matto's picture

Cog Diss, you are well respected and followed here on 0H, could you help to make a push for Zero Hedgers to start putting the word out there online to reach the masses and build awareness ala my comments below? 

If the MSM wont come to us then maybe its time we took it to them! 

Cognitive Dissonance's picture

Interesting that you would say that now. I saw your comment below.

I'm currently working on an article about "Zero Hedge" itself, about it's purpose and our purpose for being here. And I make the case for precisely that, that it's time to move out and make a difference. It's still in the oven and about a week from completion.

As usual it will ruffle some feathers and spark a few cognitive dissonances.

Matto's picture

I noticed recently on some of the financial news sites i rage on that the majority of readers were aware of what I was going on about and that it was becuase of the work of the team at positivemoney.org.uk having organised people to get out there and write a few comments and put some links up. What I also noticed was that we commentators were peppering the same financial websites over and over and I realised that if we could expand our reach beyond the financial press we have the chance to open a lot of eyes! I believe that we don't need the MSM to get onboard with this - its obvious they won't, we  only need a concerted effort by a small group to really make a big impact!


And that is what fightclub and this site is really all about!

Cognitive Dissonance's picture

I think rage and anger is counter productive, but I fully understand what you are saying. What is it exactly that we are doing here other than mutual masturbation?

Michael's picture

I'M repeating this so you and others can see it CD and maybe do something about it. I agree withe the previous poster about cross blogging the same thing on different blogs. It works.

What can we do to get everyone who is unemployed to apply for a job so they can be counted in U3?

How can we get the word out using social networking sites to apply for a job that will be legitimately counted in the BLS statistics?

I apply for unemployment compensation every 6 months even though I know I will not get it because I am not eligible for it, just so I can be counted and not put in the U6.

What can we do?


Matto's picture

Spread the word - 2 comments  that reach a wider audiance, copy and paste if you want! 


Cog Dis - i used raging when perhaps I should use rail against - no point getting to excited!


Question - why is it that the hacking group anonymous can be so successful> just organisation!

Michael's picture

I'm going to crossblog "Project BLS Mayhem" on Infowars.com.

Andre's picture

I can see why you would feel it is "mutual [intellectual] masturbation", but the site is fairly well known among the alternative media/blog sites. It was a link at an aggregator that brought me here, for example.

Zero Hedge appears to exist to provide a public forum for observations, commentary and analysis, backed by fact (though some might disagree) concerning issues affecting the sphere of business and economics. It seems well respected, enough that even Bernanke felt he had to respond to it at one point, if I recall correctly.

The issue of going to "John Q. Public" is not merely one of marketing. I am fairly certain, on the basis of watching my son's schools and others, that basic economics and business are not well taught, or are taught from an ideological rather than logical or practical perspective. Almost all the stuff you take for granted is an arcane mystery to the rest - even the acronyms. BTFD? MIC (KEY)? TPTB? You know what they mean, and I learned, but it is possible that, to "go the next step", you are talking about providing a basic primer on economics, the data, the interpretation, starting with "Why does it matter? How does this information actually help me, John Q.?" The people here see the world and what is happening differently than most.

The other possibility for making a difference might be to market things to decision makers. I remember an old friend of mine who wrote a C compiler "back when". He sold it for 10 dollars in 1979. He was told he needed to raise the price to $50 to get people to take it seriously. He did - and sales took off. Unfortunately, the most influential decision makers seem unlikely to change the concepts guiding their ideas.

I wish you luck, and I look forward to your article.

Cognitive Dissonance's picture

I did not say "go the next step" nor anything else that you have quoted above. I said "And I make the case for precisely that, that it's time to move out and make a difference." I am simply talking about discussing how this community can and should begin to move as one based upon the Fight Club" theme of Zero Hedge. I offered no guidance for how that should be accomplished.

I see you've been here for 7 weeks. Are you familiar with the body of my work here over the last 1 and 1/2 years? I never speak about stocks or business or even how to fix the system. I speak all the time about psychology and self deception and of finding the answers within. That is the point of view I bring to all my articles and which I will bring to this subject.

Andre's picture

With the exception of the word intellectual, only the first set of quotes is the only directly quoted material. "Go the next step" was quoted as a figure of speech That was a palpable editorial error, and the rest was an assumption. I apologize, and I did not intend to misrepresent you.

I assumed "making a difference" meant doing so at some more public level, a level beyond the forum in the form of knowledge, hence my comments. Again, my oversight. Getting the group here to work together would seem to be herding cats, but (assuming that is what you meant) it sounds like fun to consider.

Retiring to lurker status while I look over your previous work.


tellsometruth's picture

i've been going macro (radio shows) and micro (people i encounter stylists cashiers ect..)... people either like it or hate it... ski charlifts are good too

ConfusedIdiot's picture

How to Start a Revolution with a Thank You

How to Say Thank you:  Over 3million New Yorkers on Food Stamps
% by Population in Each NYC Borrough
Queens 11% .......................... 253,000
Bronx 29% ............................  386,000
Staten Island 10% .................   49,000
Manhattan 14%  ....................228,000
Brooklyn 22%  ........................564,000
          1,480,000 Hungry Folks for lunch

How about one million -1,000,000- take a half hour subway ride and meet for a BYOL "free lunch" between Trinity Church & NYSE next Friday 1:00PM
we can all walk over to JPMorgan Chase and thank 'em for running such a great SNAP program.
Last year it was worth $4.2 billion to the JPMorgan Chase.

A Man without Qualities's picture

"It is difficult to get a man to understand something when his salary depends upon his not understanding it."

Upton Sinclair

Matto's picture

And when his salary is gone>> What impediments does he suffer then?

A Man without Qualities's picture

Once the scales are removed from his eyes, he realizes how empty and bereft his soul is.  All the things that made him feel important and powerful are stripped from him and all the material goods he has obtained are nothing more than dirty bribes to keep him happy in his station and in truth, he was no better than a road side hooker or a dime bag drug dealer.

Unless he's a clinical sociopath that is, which more than likely... 

Sudden Debt's picture

no no no, those people don't count anymore. Written down! Off the books! Obsolete!


Eat the government cookies and drink their milk.


centerline's picture

At some point, unemployment, by virtue of it's calculation metholody, can effectively go to zero while actual unemployment becomes 100%.  Can anyone say "banana republic?"  Come on... I know you can.

jowenchrist's picture




Shameful's picture

Clearly what must be happening is that 700k left the labor market because the stock market rise has made them so fantastically wealthy they no longer feel they must work.  Maybe that is the Bernanke wealth effect, he'll make us all billionaires and we won't need jobs so they can be outsourced entirely.


centerline's picture

Just about two weeks ago, some gas station guy (I can't recall exactly where I was - suffice it so say it was a real J6P I was talking to) mentioned how the stock market was up and his 401k was looking better - so something must be going right!  Of course he still had a job and was busy fixing used cars.

Anyhow, when the SHTF, there are going to be alot of pissed off people.  They are going to awake all at once at some moment when they realize they have been screwed.

AN0NYM0US's picture

your poll of 1 is likely representative of a majority of Americans

Rainman's picture

My salesman bro-in-law takes naivete to a whole new level. He admits to not following any news at all.....it depresses him. His world hums right along. His moods are shaped by the reporting on ESPN. Catastrophy for him is an NFL strike.

Gold 36000's picture

and why not?  Life is short.  It is a waste to spend it worrying and feeling pessimistic.  There are tons of girls out there to screw, so little time.

Beer still tastes good.  And if TEOTWAWKI doesnt occur many people will have wasted their years in worry when they could have been having fun.  You only go around once.

Matto's picture


Matto's picture

It is time for Zerohedge to move beyond the financial blogoshere. It is time to enact Project Mayhem. 


Our homework this week is to re-educate the masses by submitting a brief explanation of the effects of Fractional Reserve Banking to the comments section of 2 popular non-financial blogs, any blogs so long as they are non-financial & mainstream popular.


Example comment to cut and paste to come shortly.


Matto's picture

It's time to end Debt-Money! 

Through a process known as Fractional Reserve Banking, private banks get the right to create our money out of nothing in the form of debt. This debt-money they lend out to the public as loans and the cost of which is born through-out our society.


When banks create this money they loan it out at interest, meaning that while they created it out of nothing we trade our labour and time for other peoples 'loan-tickets' to repay them. And as it is loaned at interest, it requires more debt money to be created to make the additional interest portion. As such we are locked into an ever increasing debt trap, beholden to the banks for the very money we use while the banks profit from the fruits of our labour in the repayment of interest on make-believe money. For everyone who saves a dollar, another person must be a dollar further in debt.

More information is available through:

Money as debt




If all bank loans were paid...there would not be a dollar of coin or currency in circulation. Someone has to borrow every dollar we have in circulation. We are absolutely without a permanent money system.

Robert A. Hemphill Atlanta Federal Reserve Bank


Banks lend by creating credit. They create the means of payment out of nothing

Ralph M Hawtrey, Secretary of the Treasury, UK

PulauHantu29's picture

Thank you for the video links!

MrBoompi's picture

Let's remember they also used the fractional reserve "method" when we had a gold standard, which led to FDR's gold confiscation act.

If some consider it insane to force banks to keep 10% reserve, I wonder what they would think about the reserves that back up derivatives?

No wonder Jamie D is pushing for NO capital reserves at all.

Triggernometry's picture

At least until we end up as Robert Paulson

camaro68ss's picture

should i be bullish on food stamps?

curbyourrisk's picture

I guess they are printed on different printing presses....  Oh wait, they are issued on debit cards run by JPMorgan.  Nice profit for them too.


Get long JPM...oh wait....they suck.....

JW n FL's picture

Jobs? we dont need no stinking Jobs!