The unemployment rate keeps falling

The unemployment rate—that is, the official unemployment rate, tallied by the Bureau of Labor Statistics—has been steady at 5.8 percent for two months in a row, which is quite an improvement from the 10.0 percent in the depths of the Great Recession (Oct. 2009). This is reinforced by looking at the number of initial claims for unemployment insurance, which also is low and falling. During the last period of sustained growth, 2004-2007, the number of initial claims averaged 326,600 per week; in March 2009 it peaked at 670,000 per week. The trend has been downward since then. The latest count was 294,000 (the first week of Dec. 2014). Of course, more than a few people give little credence to these numbers. To get a better picture of what’s going on, it’s necessary to dig a little deeper. The BLS actually measures unemployment six ways:

• U-1: People unemployed 15 weeks or longer
• U-2: Job losers and people who completed temporary assignments
• U-3: Total unemployed (this is the one reported in the news every month)
• U-4: Total unemployed plus discouraged workers
• U-5: Total unemployed, plus discouraged workers, plus all other people marginally attached to the labor force
• U-6: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part-time for economic reasons

The first three are straightforward, but after that it starts to get a little murky. In labor market parlance, a discouraged worker has stopped looking for work. This person isn’t measured by U-3 because U-3 measures people interested in finding a job. The purpose of U-4 is to make up for this shortcoming in U-3. The next measure, U-5. includes those who are marginally attached to the labor force, which is a bureaucratic way of describing someone who has looked for work at least once in the last 12 months. Again, U-3 misses this sort of intermittent job-seeker. Finally, U-6 includes all of these people plus those working part-time jobs who would like to be employed full-time. These go in order of severity. The first, U-1, had the lowest peak, at 5.9 percent, in April 2010. The all-encompassing U-6 had the highest peak at 17.2 percent during the same month. Thankfully all have improved quite a bit since then: U-1 is at 2.7 percent and U-6 is at 11.4 percent. Another trend that shows the labor market is on the mend is in the Job Openings and Labor Turnover Survey (eagle-eyed readers have already noticed that this has the catchiest acronym ever concocted). One of its measures is the quit rate, which is an indirect measure of worker confidence in the job market. The quit rate doesn’t vary much, hitting a high of 2.3 percent in 2005 and a low of 1.3 percent in 2009. Still, it shows improvement these days, having climbed to 1.9 percent in October 2014. By all of these measures, the labor market has returned to normal. The peaks and valleys of the 2009-2010 timeframe are long gone and all of these measurements have returned to the middle ground. The trends have been solid for months, and in some cases years, indicating steady, solid growth. Is that it? Of course not. Going back to the first paragraph, the number of initial claims for unemployment insurance is just 294,000, which is well below average. At first pass, the reason for this is obvious: Fewer companies are laying off workers. A second pass uncovers something else lurking beneath that number, a second reason for fewer layoffs: Fewer companies exist. This isn’t necessarily easy to measure, at least not year by year, but the annual number of total bankruptcy filings tells a story about the number of businesses on the verge of insolvency:

• 2007: 21,960
• 2008: 30,741
• 2009: 49,091
• 2010: 61,148
• 2011: 54,212
• 2012: 46,393
• 2013: 37,552

Other data sources back this up indirectly. The labor force participation rate measures the percentage of people employed. The BLS has this information going clear back to the late 1940s, when fewer than 60 percent of the population worked. It started climbing in the middle 1960s as more women entered the workforce, and reached 67 percent in the mid-1990s. It fell about 1 point and stabilized around 66 percent for several years, but in late 2008 it started a rapid fall and it never turned around. The fact that it continued in one direction whereas the others have turned around means that this is part of a long-term, structural shift. This is abetted by the aging of the U.S. population as the number of retirees grows, but the other point is still valid: A decreasing number of layoffs can be misleading. While it is a sign that businesses are laying off fewer people, it also suggests that the number of businesses has fallen.