- While the February jobs report showed unemployment dipping to 6.2%, the “real” rate is much higher.
- Fed Chair Powell and Treasury Secretary Yellen said in early 2021 the real rate is closer to 10%.
- When accounting for misclassification and dropouts, Insider calculates the true rate at roughly 9.1% after February.
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February labor-market data published by the Bureau of Labor Statistics pegged last month’s unemployment rate at 6.2%. The true state of the economy is likely gloomier.
Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen emphasized before the BLS report that the “real” unemployment rate likely stands closer to 10%. Such an unofficial measurement ropes in workers suspected to have been misclassified as having a job even though they’re actually on a COVID-19-related furlough and people who have stopped looking for work and dropped out of the labor force since last February amid the crisis.
Those populations are left out of the government’s benchmark U-3 unemployment reading – the number that stood at 6.2% after February. By Insider’s calculations, the “real” unemployment rate touted by Powell and Yellen stands at roughly 9.1% for the same period.
Other gauges used by BLS paint a similarly bleak picture. The U-6 rate – which includes Americans marginally attached to the labor force and those employed part-time for economic reasons – held at 11.1% in February, according to the Friday release. The gauge peaked at 22.9% in April 2020 but still has plenty of room to fall before reaching the pre-pandemic reading of 7%.
To be sure, the jobs report wasn’t all bad. By some measures, it was a sign of major improvement. Nonfarm payrolls grew by 379,000, handily exceeding the median economist estimate of 200,000 payrolls. The hospitality and leisure industries accounted for 355,000 of those new jobs, a signal that the sectors hit hardest by the virus and related lockdowns are steadily improving.
The diffusion index - which tracks how many sectors added jobs versus those cutting payrolls - returned to positive territory, signaling job gains are broadening. The labor-force participation rate held steady at 61.4% after declining the month prior.
The data underscores recent commentary from Fed Chair Powell on his economic outlook. There remains "a lot of ground to cover" before the US comes close to reaching the Fed's maximum-employment goal, the central bank chief said. And while the unemployment rate remains a key indicator, other gauges are critical for judging the overall health of the labor market, he added.
"Yes, 4% would be a nice unemployment rate, but it would take more than that to get to maximum employment," Powell said.