Throughout the two-terms of the Obama Administration we took task with the cheers and back-slapping that occurred every time the unemployment rate was lowered after peaking from the 2008 recession. In multiple articles we identified several critical facts detailing how weak the economy remained and the tepid opportunity that existed outside of the singular U-3 rate published by the Bureau of Labor Statistics and plastered on headlines in all media. But with the latest blockbuster on June 1, 2018, reporting a 3.8% May 2018 unemployment rate, is this another case of pigs flying or a real indicator of a better economy?
Well the first thing to identify, as we did with the Obama Administration, is the fact that 3.8% is not correct. This is the U-3 rate, which ignores several critical factors affecting employment in the nation. It is the most commonly quoted figure, under any Administration, but it’s popularity does not equate to credibility. The most accurate figure to quantify the unemployment rate in the nation is the U-6 underutilization report. This covers people not working, marginally attached to the workforce, and working part-time because they cannot get a full-time job. It’s reported every month under table A-15, and it stands at 7.6% for May 2018.
Obviously this is massively higher than what the headlines of mainstream media indicate. But the real unemployment rate has consistently been higher. At it’s recent worst, the U-6 sat at 17.1% in August 2010. That was the end of the Summer of Recovery, as touted by President Obama. Even in January 2017, the U-6 stood at 9.4%. So the reduction is still significant as its a reduction of 20% in less than 18 months of the Trump Administration. For perspective, the same timeframe for the first term of the Obama Administration was flat. In the first 18 months of the second Obama Administration term, the U-6 change was only a reduction of 9.2%.
Another massive factor to determine the reality of the economic health of the nation, that we have looked at in the past, are those Not In the Labor force, found on table A. This number grows every year, and has as long as the St. Louis Fed has recorded. What does matter though is the rate of growth in this figure. Under the Obama Administration, starting January 2009 until December 2016 the number of people not counted as part of the unemployed and yet without a job grew by 15 million people or 2.38%/year, or 19% total. Thus far under the Trump Administration the total increase has been 1.7 million people or 1.2%/year, or 1.8% in total. Effectively, if the current trend continues, the Trump Administration – assuming 2 terms like Obama – would end up with just under half the growth.
Looking at the health of the economy, the number of people only able to get part-time work is critical. It is an indicator of corporate growth, job growth, individual wealth, and consumer spending. Working full-time means more money and thus more spending or investing. At the non-recession peak of the Obama Administration, after Obamacare and its cost impact of employers, 9 million Americans were only able to get part-time jobs. That was September 2011, two years into the Obama Administration. It then reduced to 5.4 million Americans as of December 2016 – a reduction of 40%.
Looking at the results under the Trump Administration the starting figure is January 2017 at 5.7 million part-time Americans. The latest result for May 2018 is 4.8 million. Its a reduction of 16%. It’s unlikely that this can get significantly lower as the nation has hit a level that economist consider essentially full employment. This information can be found on table A-8.
A final figure that is essential for understanding the reality, or lack thereof, with the unemployment rate and economic health of the nation, can also be found on table A-8. That figure is the Self-Employment figure. Universally understood that 70% of the engine of job growth lies with small business, this figure is a massive indicator of consumer confidence and innovation in the nation.
Nearly 2 years (16 months) after the declared Summer of Recovery and end of the recession, in September 2011, the number of Americans opening and creation small businesses bottomed at 8.3 million Americans. From that point until the end of the Obama Administration, the number of self-employed Americans has averaged about 8.6 million. The highest point was a 1-month peak at 9.1 million Americans.
For the year and a half of the Trump Administration thus far, has averaged from 8.5 million to 9 million as of May 2018. The year over year comparison is a growth of 500,000 self-employed business owners. Since September 2017 the number of self-employed Americans has not been below 8.9 million. It’s unclear if the Tax Cuts and Jobs Act passage has contributed to this, but higher competitiveness and a reduced barrier to profit would appear to be a spur to industry.
In conclusion, considering all the critical factors that we reviewed during the Obama Administration, and both comparing them to the Trump Administration as well as standing on their own, the 3.8% unemployment rate lives up to the hype. Given the fact that it is one of the least comprehensive figures that could be presented, but that has been true of all modern presidential Administrations. The economy is credibly stronger, by empirical data, and indicates that at least near term continued growth will occur.