Cookin' da Books!

 

 

"Did I really say that? You must not have heard me correctly..."

Well knock me over with a feather! I never saw this one coming! Actually I did, along with millions of others who happen to pay attention to what is really going on. What am I talking about? The revelation made this week the unemployment numbers were "jimmied" right  before the election.

First off, part of the fault is not of the Administration - it is ours. The fact we still use the most meaningless statistic on unemployment (that be the U3), is a shame on us. We should have been using the U6 for years. Most economists use the U6, as it tells a more factual story about the economy. That being said, the Administration still toyed with the U3 to make it come down under 8%. It seems there is an urban legend that many take serious - no President can be re-elected if the U3 unemployment rate is 8% or higher.

When the Administration announced the U3 had come down from 8.2% to 7.8% weeks before the election, the response by the public was split. For those who enjoy drinking Kool-Aid, as well as the "low information" crowd, the response was "See, told you so!" For those who pay attention to the metrics in the market (like Jack Welsh, the former CEO of GE), the response was "No way!" However, as we saw from history, the first group of people ruled the day, and the President was re-elected.

So how is our unemployment rate now that we almost a year into the second term? The U6 is still hovering around 14%. True, it has improved almost 3% since the start of the Great Recession. However, compared to most of the Bush years when it was slightly under 10% (still not good), it is terrible. However, the real story is not even in the U6 rate - it is in two other metrics.

First, our labor participation rate continues to drop. It has gone from troublesome to almost catastrophic. We now have 91.5 million people out of the work force. And it is still growing. We hear nothing on this issue from the "book-cookers". Second, the type of jobs being lost and the type of jobs being replaced are more dissimilar than similar. More service sector, more hospitality, less manufacturing. Low or no benefits, part time over full time, and lower wages. The economy has gutted the middle class so much that we are in fact becoming a bifurcated economy of rich and poor.

It has been a bad second half for the Administration. Lies, deceit and half-truths have caught up with them on many issues, including this one. As a young man, I was told the worst thing you could ever lose was the trust of others - once it is lost, it is almost impossible to regain. I think the Administration is about to learn that lesson.