‘Real Unemployment’ Rate Points in the Wrong Direction

The unemployment rate number people talk about and analyze every time the new jobs numbers come out â€" such as the 6.7 percent rate reported Friday morning â€" is not the “real” unemployment rate. And some policymakers are among them â€" which makes one line in particular in the report more interesting and important than usual.

While some (we’re looking at you, Donald Trump) argue that joblessness is vastly higher than the Labor Department reports, a more routine critique is that it would be better to focus on one of the government’s own, broader measures of unemployment. It is known as U-6, the most widely defined form of unemployment out of six Bureau of Labor Statistics classifications. It was 12.7 percent in March, up from 12.6 percent in February but down from 13.8 percent a year ago.

(The more widely reported joblessness number is known formally as U-3. Economic data hipsters are free to explain their own preference for the little-watched U-4 or U-5 in the comments.)

The people who count as unemployed for purposes of U-6 include all those unemployed under the conventional definition, but also people who say they have given up looking for work out of frustration with the economy and people who are working at a part-time job but would prefer full-time work. It’s not necessarily more “real” than the regular unemployment rate; it’s just capturing different things.

Dennis Lockhart, the Federal Reserve Bank of Atlanta president, argued this week that tracking U-6, though, could provide extra insight into whether the economy is healing. He told reporters that he would like to see the gap between U-6 and U-3 fall back to the range of 3 or 4 percentage points before the Fed raises interest rates.

That gap was 3.8 percentage points right before the recession began at the start of 2008, and peaked at 7.3 percentage points in both 2010 and 2011. In March it was 6 percentage points â€" actually widening a bit from February, as U-3 was unchanged and U-6 ticked up.

In other words, to the degree that policymakers are using this piece of evidence to shape their decisions, it still points to keeping easy money in place for quite some time to come.