May 6, 2011

Unemployment up. That’s good news. Wait, what?

The numbers from BLS for April have come out and unemployment rose back up to 9% from 8.8% percent the previous month.  That’s good news apparently.  Wait what?  How on earth do you spin that one?  It sounds like the climate change arguments that a colder planet is a result of global warming (or rather, ‘climate change’).

There’s actually a method to the madness.  Current reported unemployment, U3, does not include those who have given up looking for work.  Given the two quarters of growth, albeit that the latest was significantly weaker, there is in fact a way to spin this as good news.  What’s happening they argue, is that people who had given up looking for work, are coming back into the job search market and re-inflating those numbers.  Those discouraged and underemployed are included in another BLS measure U6.  U3 in other words, is a subset as U6.

So given the positive spin, you would expect that overall, while U3 has risen that U6 would be still be declining or at least stable if people who are unemployed are simply switching categories.  But even the ultra liberal Daily Kos recognizes that U6 is also suffering problems and is also in fact rising.  So that superficial spin is not really analysis.  Unemployment, at least in April was back on the rise.

There’s really only one way to spin that can’t yet be refuted – that April was a temporary spike and May or June should return back to the trend of declining unemployment.  That’s also hard to argue but not impossible like the initial spin that’s been put out there.  But even that argument is temporal because the next few months will either refute it or bear it out.  I think the former is more likely.  It’s not surprising that GDP growth dropped from 3.1% two quarters ago to 1.8% last quarter.  With the 2009 stimulus money drying up or not being spent – it was designed to peak in 2010 – the government stimulus was always going to be temporal.  Even Keynesians would argue that the idea of a stimulus was to fill a gap and kick-start non-government spending to take off as the stimulus wore off.  That’s not really happening as they expected and with the government stimulus bubble finishing off,  the GDP numbers could head back into anemic territory for a while.

That’s not good news for President Obama when he comes off of his bump from the Bin Laden hit.  The economy may not save him, and in fact, the economy may prove to be the final nail in his electoral coffin. 

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