Unemployment rate starts to decline in May 2020 after shooting up in April.

The headline unemployment rate declined to 13.3% from 14.7% in April. Rates for both months are a dramatic increase from the 3.5% rate in February.

The only way I can square this data with the massive volume of new unemployment claims is that a lot of people are getting new jobs after being furloughed. That is the only way the U3 is not above 20%.

So, my tentative guess is the economy is actually starting to recover, in spite of efforts of multiple governors to keep the economy in their states shut down.

Misclassification error in data understates unemployment

A new phenomenon in the age of shutdown is arising from the way the data is accumulated. The unemployment rate is determined by a large survey.

Turns out people are answering the question of their unemployment status as “employed but absent from work.” In normal times, that means a person is on vacation, thus actually employed.

In this shattered economy that means you got laid off or furloughed but are still getting paid by your employer or perhaps highly enhanced unemployment. People in that category are actually unemployed but are counted in the statistical data as employed.

Issue is explained in more detail by the Wall Street Journal on 6/10/20:  Coronavirus Pandemic Makes Unemployment Calculation Harder.

The Labor Department reports that if the misclassification error were corrected, the U3 unemployment rate would increase by:

  • 1% – March 2020
  • 5% – April
  • 4% – May

To maintain consistency in methodology, and more importantly avoid charges of fudging the numbers, the Labor Department has not corrected for the methodological error.

Measures of unemployment in recent months

Official measures of the unemployment rate since the start of the economic shutdown:

measure Feb 20 Mar 20 Apr 20 May 20
U-1        1.2        1.2        1.1       1.4
U-2        1.7        2.4      13.2     11.6
U-3        3.5        4.4      14.7     13.3
U-4        3.8        4.7      15.1     13.6
U-5        4.4        5.2      16.0     14.6
U-6        7.0        8.7      22.8     21.2

 

The Six Different Measures Of Unemployment Provided By The U.S. Bureau Of Labor Statistics:

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
U-5 Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force (i.e. marginally attached)
U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

The U3 stat is routinely referred to as the official unemployment rate. That is the measure everyone talks about.

 

A graph of U3 and U6 unemployment rate since before the Great Recession, adding in the misclassification error to the U3 rate:

 

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