MADELEINE BRAND, host:
Unemployment jumped to 6.5 percent last month. That is a 14-year high and that means 240,000 jobs were cut in October. Some analysts say the labor picture is much darker than that indicates. And here to explain, Barry Ritholtz, he's a financial strategist and writes a lively and sometimes very funny blog called The Big Picture. Barry, welcome back.
Mr. BARRY RITHOLTZ (Chief Executive Officer and Director of Equity Research, FuisonIQ) Thanks for having me.
BRAND: Now, everyone's talking about this figure that only people in the know who follow this called the U3. What is the U3?
Mr. RITHOLTZ: U3 is the classic headline number. What is the total unemployment as most people commonly understand it? It's a somewhat narrow definition of unemployment, and there are actually much broader definitions of unemployment.
BRAND: So, tell us about those. There's one called the U6, I understand.
Mr. RITHOLTZ: Well, U4, U5, U6 and they are all subsets of - each one is the previous one plus another group of unemployed. So, to go from U3 to U4, we add a group of people called discouraged workers. These are people who have given up looking for jobs even though they want a job. Then there's a different group called the marginally-attached worker, and that's somebody who isn't looking for a job but wants one. And there's another group of people who are working part time, but want a full-time job, but can't find them. If you take the broadest measure, the U6 measure of unemployment, we're talking about 11.8 percent, and those are numbers similar to what we saw in the 1970s. That's an ugly unemployment number.
BRAND: Well, why doesn't the government count that number or use that number when reporting these numbers?
Mr. RITHOLTZ: Do you really have to ask that question?
BRAND: I do have to ask that question.
Mr. RITHOLTZ: You know, it's funny, because it's not a grand conspiracy. It's not a sudden change. This has been a very gradual series of incremental changes that have shifted what we define as unemployment over the past 30 years. And it's actually had this really pernicious impact of slowly but surely moving us away from a firm regress of economic reality. It's why people like Phil Gramm - who I don't think is particularly venal, I just think he doesn't know - it's why he could say, this is really a mental recession. Look at the unemployment number. It's not that bad. Well, the 2008 unemployment number is not the same as the number that was reported in the mid-'70s.
BRAND: OK. So, if the real number, as you say, is 11.8 percent, what does that mean?
Mr. RITHOLTZ: Well, it means that we're in a very serious situation. Those are numbers that are associated not with the mild recession, but with a much deeper and historically prolonged recession. You go back into the '70s. Those were horrific, deep, ugly recessions with high unemployment and high inflation, and even the recessions in the '80s were - early '80s were pretty tough.
This current economic contraction, this recession which we're dating somewhere beginning in either January '08 or December '07, it's already been a yearlong mild recession, and now it seems to be tumbling into a much deeper recession. For the past year, we've lost 1.18 million jobs, and out of that, let's call it 1.2, over 600,000, half, have been lost in the last three months. So, that's telling you that, gee, this is really accelerating to the down side, and that sort of change is reflected more quickly in the U6 numbers. For those of us who actually dig beneath the headline and read the sort of geeky data, this was a long time coming. We saw this six months ago, because the U6 numbers started picking up long before the U3 numbers. They run pretty parallel. U6 just leads by a month.
BRAND: Barry Ritholtz. You can read more about all of these at his blog, The Big Picture. Barry, thank you.
Mr. RITHOLTZ: Thanks for having me.
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