Sunday, May 27, 2012
What is the U6 Unemployment Rate?
The U6 unemployment rate as referenced on Portal Seven is: The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts "marginally attached workers and those working part-time for economic reasons." Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the "marginally attached workers" include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over Currently, the U6 unemployment rate is 14.5% which is higher than the official U3 rate of 8.1%. Table A-5 contains the U6 data. Do you think this gives a better picture of the labor force? This table means that workers have to accept half-time jobs because there's not enough full-time work available. An increase in this measure shows a weakening economy. Since January, 2012, the U6 rate has decreased from 15.1 to 14.5. As the economy hires more workers, incomes increase and so does spending. Sales should pick up making stock market investors giddy. The bond market gets nervous when the economy strengthens on news of increased jobs because it signals possible inflationary expectations and selling lowering bond prices. The USD might see an appreciation of the currency because lower prices will drive interest rates higher. In economics there is always a mixed bag of good and bad news. Increasing jobs might mean higher prices later. For bond investors that might means lower income from fixed-income accounts. I like the higher stock prices as stocks make up the bulk of my portfolio. In the case of jobs, I think the benefits of increased employment are greater than the costs.