Fisher Investments Editorial Staff
US Economy, Media Hype/Myths

A Tale of Two Unemployment Rates

By, 01/10/2011

Story Highlights:

  • US December unemployment was released Friday, and the results were a tad disappointing to economists.
  • The report received a great deal of press attention.
  • While unemployment is a sensitive issue to many, the unemployment rate is far from the economic indicator of utmost importance.


      December's US unemployment report was released Friday, showing 103,000 private sector jobs added in the month. Despite the fact December's job gains mark twelve consecutive months of increased private business hiring, the report disappointed analysts by missing expectations of 150,000 hires. The unemployment rate ticked down—from 9.8% to 9.4%, though much of this could be due to folks slowing their employment search.

Ben Bernanke made headlines in congressional testimony this morning with comments that, although US economic growth had seemingly improved lately, it could take five years' growth to reach "normal" unemployment levels of 5%. (It's puzzling 5% unemployment—near the pre-recession trough—is thought of as "normal." The annual average since 1970 is 6.4%.[i])

But as we've said before, unemployment is a strangely calculated, lagging indicator that's not always very telling about current economic health. Want more evidence? The chart below displays the US unemployment rate since 1990 relative to a mystery country's unemployment rate.


Sources: Federal Reserve Bank of St. Louis, Bloomberg.[ii]

As the chart shows, the mystery country has a far lower unemployment rate than the US—and normally does historically. So what is our mystery country? Japan.

That's right—the same Japan that's been mired in slow economic growth and recently experienced an economically lackluster decade has a 5.1% unemployment rate as of November 2010—nearly half the US unemployment rate. This makes an important point: While unemployment receives heavy media attention, it's simply isn't the be-all, end-all economic health indicator.

There are many ways in which the US economy has outperformed Japan in the recent past, despite its comparatively low unemployment. For example, US real GDP is now a hair below its pre-recession peak achieved in 2008. Japanese GDP is slightly below its all-time high too—but that peak was achieved in the mid-1990s. In the roughly 15 years since Japan's peak, US GDP has grown significantly. Also, while US workers' output per hour rose a sharp 7.7% during 2009 (first among the 19 industrialized countries the Bureau of Labor Statistics tracks), Japanese output per hour fell -11.4%. In other words, US corporations did more with less. The Japanese? Not so much. And the list doesn't stop there: Many other economic data points speak to US economic outperformance versus our Japanese peers.

Japan Inc. has historically laid off far fewer workers (per capita) than corporate America—a fact somewhat idealized during Japan's boom in the 1980s—which contributes to Japan's comparatively lower historical unemployment rate. But in retrospect, this wasn't a tailwind driving Japanese economic performance above and beyond America's.

Folks commonly focus too heavily on unemployment and not enough on other, more telling economic metrics. Since high unemployment exists in the States today, many folks have been personally impacted. This emotional connection to data makes unemployment seem the predominant economic statistic—and is likely part of the reason it's so frequently front page news. But in the coldly logical world of economic statistics, unemployment rates are far from the economic indicator of utmost importance. Look no further than our Japanese friends to see that.

[i] Source: Federal Reserve Bank of St. Louis

[ii] Chart displays Japanese unemployment rate through November 2010 due to data availability.




*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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