This must be the “new normal” everyone​’s talking about​. Where a cyclical low ​in the ​unemployment rate​, to the the low 5 percent range​,​ is met with a courtly high stock market and talks of an impending rise in rates. Sure there is a feeling in some pockets ​of the economy ​that “things” are much better out there, even though by some measures the ​labor data is unfortunately, still far from out of the dark.

​For example, ​Q1 U.S. GDP contracted​ again​ (and by nearly 1 percentage point more than GDPNow had originally estimated!) And despite Wall Street cheer, Q2 GDP ​may not come in much better. ​And on the tangible employment front, it is important to look at alternative measures of employment to get a proper read on how things genuinely align to a time when we shared similar “good feelings” in ​our past.​ After all, a feeling of “better” should often be associated with a significant proxy in the past that serve as a benchmark for that term.

​Let’s look at the employment to population ratio. Th​e​ ratio ​for May just ticked up 0.1 percentage points, to a cyclical high of 59.4 percent. Still, this level is well shy of the 62.0 percent​ that was the​ worst reading reached ​of​ 2003 (in the aftermath of the 2001 recession). The official unemployment rate doesn’t take into account the broader population, so even though ​its current 5.5 percent ​appears to be an improvement (the level resides between the previous cycle’s high of 6.3 percent in 2003 and ​its​ ​low of 4.4 percent ​in​ ​2006-​2007), we must seek a broader unemployment measure to better reflect the economy’s changing labor force (or should we say the chang​e in who’s not in the labor force?)

The U-6, the official broadest formulae for unemployment and underemployment in the U.S., is at 10.8 percent.  ​This​ level is still completely higher than the worst reading we saw in 2003 (10.4 percent).  In fact prior to the current cycle, we have to ​go back in time 2 cycles (June of 1994) in order to see a U-6 reading that is ​even ​worse than ​the current ​10.8%.

What this all evidences is that in some elements of the economy, and some influential portions of the population, things feel g​reat​ (perhaps as good as ever!)  But for many other people in ​the economy it still feels frozen​,​ at best.  Just looking at the fairly, well appreciated U-6, and seeing that is now finally within a 1/2 percentage point (of the worst ​from the 2001 ​recession​ fallout) and thinking some are forced to embrace th​is now as a sign of a recovered market.  Something seems premature when celebrating the employment to population ratio, or even the U-6, both of which are just as easy to see a​longside the headline payroll numbers.  It’s because at the end of the day, the “new normal” shouldn’t be one where our current best is worse then our prior worst.

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American Stat. Assoc. Editorial Board
Former U.S. PBGC executive Dept. Director of Policy, Research, & Analysis, and first interim Risk Officer (Obama Administration)
Former U.S. Treasury/TARP Director of Analytics