The Real Unemployment Rate Is 14.3%

With the latest data, we have not yet reached the level of unemployment seen in the 1981-82 recession when measured by U-3. The level of "real" unemployment nearly equals that previous 50-year high because it recognizes the severe reduction in work hours that are missed in the official unemployment number, as shown in the graph below.

Real Unemployment and U-3 Source: U.S. Department of Labor and Author's Calculations

The greater severity of unemployment now compared to previous recessions is more evident in the graph below, which shows the difference between the two (the real unemployment rate minus U-3). The difference far exceeds anything seen in the past 50 years.

Real Unemployment Rate Minus U-3 Source: U.S. Department of Labor and Author's Calculations

President Obama said this morning that he still expects that the official unemployment rate could reach 10%, which could well happen. That number is just outside my estimate of uncertainty in the current number. This estimate is that 9.4% unemployment really means the rate is somewhere between 9.0% and 9.8%. If the past two recessions are any guide, this peak in unemployment may occur between one and two years from now.

-- written by John Lounsbury in Clayton, N.C.

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