Serious questions have been raised regarding the accuracy of the United States reported 8.1 percent unemployment rate. In fact, one respected expert has stated that the real unemployment rate in the United States is probably 16 percent.
It is always good news when the jobless rate drops. That ethereal percentage quoted every quarter causes markets to react and political futures to either soar or implode. As in all statistics, the underlying assumptions are the key to their value. Depending on the facts considered, it is easily argued that the unemployment rate posts much higher than the percentage normally reported. The latest unemployment rate came in at 8.1 percent, a drop of .2 percent from the previous quarter.
In a recent interview, Graham Bibby, the CEO of Richmond Asset Management in Hong Kong, disagreed with the reported unemployment rate. Bibby thinks the more accurate unemployment rate is 16 percent. He does not get very specific on the criteria used to determine that higher number but points out that the usual government reported rate is based on those signed up at the unemployment office. Thus, if an individual stops looking for work or has been looking for work for over 12 months and their unemployment benefits have run out or if they have taken a part-time job, they are dropped from consideration.
To further bolster this argument, Bibby points out that the unemployment rate has been above 8 percent since 2009. To assist this improvement the Federal Reserve decided to continue their stimulus program of buying back mortgages and to continue to keep interest rates at nearly zero. Even with prior stimulus efforts the rate has changed very little. As expected the stock market has rallied behind the new numbers. Bibby notes that unless there is real progress behind these numbers this improvement in the market will unwind.
The only meaningful way to report unemployment numbers is to be consistent. There are many ways to skew statistics making it critical for readers to look at what is behind the numbers.
Bibby does not expound upon other factors that could be considered in getting a more accurate unemployment rate. Everyone has to live and eat and there has to be a supply of jobs available. It would be helpful to juxtapose statistics illustrating the increase of those below the poverty line or the increase in home foreclosures or the shrinkage in the jobs available to further verify the numbers quoted. Some experts estimate the true rate of unemployment to be even higher than 16 percent.
With a reactionary stock market that can go down as fast as it goes up all factors should be considered when making investment decisions.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.