Is the Unemployment Rate of 5.7 Percent Just a ‘Big Lie’?
Business + Economy

Is the Unemployment Rate of 5.7 Percent Just a ‘Big Lie’?

The U.S. job market is, to use a technical term, really hot.

January saw non-farm payrolls jump by a better-than-expected 257,000, and data revisions lifted the totals for the prior two months by 147,000 more. Over the last three months, the economy added more than a million jobs, the strongest pace of labor market growth since 1997.

True, the unemployment rate ticked up to 5.7 percent, but that was for positive reasons, as more workers came back into the job market. “The reason the unemployment rate is higher is because the labor force is now estimated to be 1,051,000 bigger when the household survey tally of employment was up by only 759,000,” Paul Ashworth, chief U.S. economist at Capital Economics, explained. On top of all that, average hourly earnings bounced back, putting annual wage gains at 2.2 percent — still tepid, but slightly more reassuring than the 1.7 percent number from December.

Related: 3 Secrets to a Better Job (and More Money)​​

“We limped along during much of the recovery; last year we started to walk and by year-end, transitioned into a jog,” economist Diane Swonk of Mesirow Financial wrote Friday. “We are still a long way from a sprint, which would include more rapid wage gains, but we do appear to have hit a new stride. That is something to welcome.”

Yet even before the numbers are released the chairman and CEO of the venerable Gallup polling organization wants you to know something about the unemployment rate: It’s all a “big lie” perpetuated by the White House and its co-conspirators on Wall Street and in the media.

“Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is ‘down’ to 5.6 percent,” Gallup’s Jim Clifton wrote in an attention-grabbing opinion piece published Tuesday on the polling firm’s site. “The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.”

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Clifton went on to explain why that official unemployment number is “extremely misleading”: If an American is so discouraged about the prospect of finding a job that he or she gives up looking for four weeks, they’re no longer counted as unemployed. Instead, they are considered to be out of the labor force.

Similarly, if someone is working part time but would rather have a full-time job, the official unemployment rate — a measure known as U3 — simply counts them as employed. “Say you’re an out-of-work engineer or health care worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed,” he wrote.

Clifton, who has been Gallup’s CEO since 1988, should know a little something about how numbers can mislead, and in this case he’s certainly got a point. As he put it: “Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast ‘falling’ unemployment.”

At the same time, though, that official unemployment rate does provide some useful information about the broader direction of the job market — and most economy-watchers who toss around that figure, from the White House to Janet Yellen at the Federal Reserve to the lowly journalists writing monthly stories about the job market, know it’s just one imperfect measure of a massive and complex economic picture.

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That’s why the Labor Department also releases five other measures of unemployment, including one called U6, which includes people who want a job and have looked for work sometime in the past 12 months as well as those working part-time because they can’t find full-time jobs. And it’s why the Fed and others are focusing on a broader “dashboard” of data about the labor market rather than just relying on one number. Or why some economists continue to look at the difference between the U6 and U3 rates. (That U6 rate, by the way, is now 11.3 percent, down from 12.7 percent a year ago.)

The broader point is that any statistic can be meaningless without the proper context. A 5.7 percent unemployment rate, for example, looks pretty good now in comparison to the 10 percent rate of October 2009, but it wasn’t so hot back in June 2008, when the unemployment had jumped by a percentage point over the previous year and was climbing ever higher.

Whether you consider the unemployment rate to be a “big lie” or not, the truth remains this: The job market today is much stronger than it was, say, five years ago, but it is still not as good as it needs to be for Americans to feel a broadly shared prosperity. The White House, Wall Street and the media know this. The American public knows it, too.

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