True Unemployment for July at 20.6 Percent

Last month we featured Donald Marron's website in which he explained that the true unemployment rate was several points higher than the official government number.

Today we look at the Top Stocks Blog at MSN Money, where Anthony Mirhaydari explains why the real unemployment rate for July is at 20.6 percent if you factor out the fudging of the "birth/death" model used to make the government's numbers look better.

Here's a chart:

Mirhaydari explains:

Not to scare you, but the situation is actually worse than it seems. Over the years, the government has changed the way it counts the unemployed. An example of this is the criticized Birth-Death Model which was added in 2000. The model is designed to account for the birth and death of businesses and the resultant lag in survey data. Unfortunately, the model doesn't work that well during economic contractions (like we have now) and consistently overstates the number of jobs being created each month.

John Williams of Shadow Government Statistics specializes in removing these questionable tweaks to the government's statistical data to better align current numbers with the methodology used to gather historical data. After reviewing the data, Williams believes that "the June jobs loss likely exceeded 700,000." David Rosenberg of Gluskin Sheff notes that the fall in the number of hours worked in June (to a record low of 33 per week) is equivalent to a loss of more than 800,000 jobs.

There are similar issues with the way the unemployment rate is measured. The headline rate only jumped from 9.4% to 9.5% because of a drop in the number of people in the workforce. The more inclusive "U-6" measure of unemployment, which includes discouraged workers, jumped from 16.4% to 16.5%. But even this doesn't adequately capture the situation on the ground: Back in the Clinton Administration, the definition of discouraged worker was changed to only include those that had given up looking for work because there were no jobs to be had within the last year.

By adding these folks back in, William's SGS-Alternate Unemployment Measure rose to a jaw-dropping 20.6%. Separately, the Center for Labor Market Studies in Boston puts U.S. unemployment at 18.2%. Any way you cut the numbers, the situation is very bad. According to David Rosenberg, one-in-three among the unemployed have been looking for a job for more than six months and still can't find one.

This brings us to another issue: expiring unemployment benefits. Continuing unemployment claims fell 53,000 to 6.7 million last week, but Deutsche Bank's chief U.S. economist Joseph LaVorgna wonders how much of this decline is due people exhausting their standard 26-week benefit. He says: "We are concerned about what will happen when a significant share of out-of-work individuals' benefits completely expire, because this could lead consumer spending to re-weaken, hence jeopardizing a fragile recovery."

Unless the economy starts getting traction here in the third quarter, we could face a situation where people find that they have no job and no unemployment benefits. For these people, 2009 will feel an awful lot like 1932. As a result, spending cuts will be deep and dramatic.

If this chart rattles your cage, so much the better.

It's time we quit telling lies and adjusting official statistics to make the party in power look better.

Reality is what it is, and it's always better to know the truth than the believe the lie.