Is Donald Trump's 20 percent jobless rate right?
You know the old adage: There are lies, damn lies -- and statistics.
Political power and success is based, to some extent, on the performance of economic statistics. GDP growth, unemployment, inflation and wages all play a factor on Election Day. Indeed, one of the strongest predictors of success in a presidential election is the stock market's performance in the weeks before Americans head to the voting booths.
Donald Trump, the current front-runner in the Republican primary contest, hit this notion again on Saturday, when he told the Washington Post the unemployment rate isn't 5 percent but "probably into the twenties if you look at the real number."
Is he right?
Trump elaborated on the official 5 percent unemployment rate, which was reported in Friday's nonfarm payroll report: "That was a number that was devised, statistically devised to make politicians -- and, in particular, presidents -- look good. And I wouldn't be getting the kind of massive crowds that I'm getting if the number was a real number."
But even the Bureau of Labor Statistics' alternative "U6" measure of unemployment -- which includes those marginally attached to the labor force and those working part-time for economic reasons -- stands at 9.8 percent, down from a post-recession high of 17.1 percent.
Economists at Bank of America Merrill Lynch took a crack at the jobless rate issue in a note to clients on Tuesday, admitting that the situation "doesn't feel" like a 5 percent unemployment rate is in play. Instead, based on the recent decline in the labor force participation rate to levels not seen since the 1970s, they estimate the "real" unemployment rate, assuming a partial recovery of participation, is above 6 percent and potentially as high as 7.7 percent.
Because of the way unemployment is calculated, the rate can be reduced either by more people finding jobs or more people giving up on their job search. Trump's point appears to be that Americans are more sensitive to the labor participation rate, which as shown in the chart above, has been collapsing since the dot-com bubble peaked in the late 1990s.
On the other hand, it has seen a slight recovery since September -- a possible indication that steady job growth is encouraging people to start looking for work again. More people searching for a job is partly why the unemployment rate actually increased from 4.9 percent to 5 percent last month.
Trump's undeniable appeal to many in America is fueled, it seems, by the economic frustrations connected with the drop in the labor participation rate. According to BoA Merrill Lynch, that drop is partially a result of demographics (more workers aged 55-plus and fewer younger workers) and partially by gender (more women and fewer men in the workforce).
The other half of the decline is more complicated and possibly related to issues like greater reliance on disability benefits, lost skills and other factors. Trump's message of economic nationalism could be seen as an answer to this piece of the puzzle, placing the blame on free trade agreements, H1B skilled guest workers and outsourcing of American jobs overseas.
But a 20 percent-plus unemployment rate? That looks to be hyperbole.
