Friday’s headline January U3 (official) unemployment rate of 6.3% almost certainly undercounts the number of out-of-work people in the United States, not by design, but by the peculiar circumstances of the pandemic.
Our estimate implies a real unemployment rate of 7.5%, which we acknowledge could be much higher — closer to 8.5%.
An analysis of the labor report suggests that the unemployment rate, accounting for the effects of the pandemic, is substantially higher than the headline number. By adjusting the number of unemployed to include the number of people who are not in the labor force but want a job, the pandemic unemployment rate jumps to 7.5%, as our analysis in the figure below shows.
Even under the best of circumstances, in which all employees on temporary layoffs are reemployed, the unemployment rate remains at 6.2%, only slightly better than the current U3 number.
This suggests that the modest 49,000 increase in January payrolls—which was preceded by a two-month revised decline of 159,000 jobs—should be seen within the context of restoring the labor force back to normal.
For point of reference, the U6 unemployment rate, commonly referred to as the underemployment rate, was reported at 11.1%, a drop from 11.7% in December. The U6 rate includes people who remain marginally attached to the labor force.
Finally, there are signs of scarring in the labor force after nearly a year of limited employment opportunities. More people are dropping out and more people are becoming discouraged, with fewer individuals saying they want a job.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.