Faking Something Up

by John Crudele

THE unemployment rate may start moving lower -- because the job situation is getting so bad.

Now that I got your attention with that obviously contradictory and puzzling sentence, let me explain.

The nation's unemployment rate is currently 8.9 percent and the experts on Wall Street are predicting it might rise to 9.2 percent when the May report comes out tomorrow.

They also think the number of job losses last month could be about 550,000, which would be slightly worse than the 539,000 jobs lost in April.

I don't think there will be any major surprises on either of those numbers.

May is one of those months when the Labor Department adds a boatload of probably non-existence jobs to its count because it wishfully believes new companies are being formed just because it's springtime.

The recession? It doesn't matter to the computers that add these phantom jobs.

This is known as the birth/death model. And that optimistic estimate should keep the number of lost jobs in check with expectations.

But the unemployment rate -- the 8.9 percent figure last month that experts are predicting will eventually rise over 10 percent -- is a bit more complicated and perplexing. The government calculates the unemployment rate in several ways.

The so-called U-3 figure is the one that makes the newspaper headlines, although there are six different ways that the Labor Department calculates the number of unemployed people as a percentage of the population.

These figures begin with phone calls to just 60,000 of the nation's 105 million households. The US Census Bureau asks the people who answer the phone their employment status.

The results are then scientifically extrapolated for the entire population, seasonally adjusted, nipped and tucked and, voila, delivered to you the first Friday of every month.

The Labor Department swears that the size of the sample is plenty large. And it doesn't think there is a problem with the respondents telling the truth.

OK, I'll be cooperative and buy that.

But here's my point today: Changes made in 1994 could cause the unemployment rate to actually decline if the economy gets so bad and jobs become so scarce that people become too discouraged to even look for work.

Under the changes made in 1994, a person is considered discouraged if he says he hasn't looked for work in the last four weeks.

If it's been a month since he's looked for a job, the unemployed person falls out of the U-3 category -- and the headlines -- and into something called U-6.

The U-6 unemployment rate is already 15.8 percent, up from 8.9 percent in April 2008. So lots of people are being demoted into this category, which also includes people who say they want full-time work but can only find part-time employment.

Since the US has lost jobs in every month since Dec., 2007, it's easy for people to just give up and fall out of the U-3 category. If they totally give up, the would-be workers could even fall out of the U-6 survey and into statistical oblivion.