Cheat Sheet Q&A:

Today’s Topic:  The flaw in the calculation of the unemployment rate

The question:  I've heard you explain how the Government unemployment percentage is flawed but to be honest I guess I hadn't paid enough attention to understand it.  I'd like to be able to explain it to others so that I'm not just saying that the number isn't real.  Please help me understand how the unemployment % used to be a good measure of employment and now it isn't? 

Bottom Line:  I appreciate your candor.  I do try to break down otherwise complicated and mundane information into something that’s easier to digest if not entertaining (hopefully).  Anyway let’s get to breaking down the flaw in the way the Government calculates unemployment and why it used to generally be a good barometer but no longer works well… 

The unemployment rate is simple enough in its construction.  You need to know the number of Americans looking for work who aren’t currently employed, against the total size of the current labor market.  That is the easy part.  The not as easy part is getting an accurate depiction.  The Federal Government long ago decided that the best way (or perhaps easiest) to study and measure unemployment was by taking those who are on unemployment benefits and calculating that figure as a percentage of the total labor market.  That calculation generally works as long as those who are unemployed and seeking work 1.  Sign up for unemployment benefits and 2.  Obtain work prior to their benefits expiring. 

The Bureau of Labor Statistics always knew there was margin for error in the unemployment rate (for example over the course of time 10-20% of those who are eligible for unemployment benefits will never signup for them).  Prior to the Great Recession the average length of time someone was unemployed vacillated between 10-15 weeks.  With the average unemployment benefits lasting for six months this inexact way of calculating benefits did generally work.  With full employment being considered 5%, even if you had a 10-20% margin of error you’d have a “real” unemployment rate of 5.5% to 6%.  These days the average length of time between jobs is far higher than we’d ever experienced previously and the number of long term unemployed is substantial.  With that I’ll move over to the next story with regard to the “real unemployment” rate…

If you have a topic or question you’d like me to address email me:

Audio Report:



How 1.1 million (1094000) went "back to work" when actually did & the actual unemployment rate: 

Bottom Line:  The actual unemployment rate has never been further from the Government reported number on a percentage basis.  While the Government reported unemployment rate is 6.3% the actual U-6 number is 12.3%! 

Now before I go any further, April was a decent month for overall hiring.  The real unemployment rate did drop by 0.4% from 12.7 to 12.3%.  By adding 288,000 jobs in April we did have our best month in about a year and a half and hopefully we’ll see that trend continue and pickup above the 300,000 per month level that is what we look for in a healthy and recovering labor market.  That being said the Government number didn’t reflect 288,000 jobs being added in April.  It in effect counted nearly 1.1 million jobs being added!  How? 

·         806,000 people fell out off of unemployment benefits without obtaining work in April.  That dropped the labor participation rate to 62.8%, the second lowest rate in the history of the number and the lowest in 36 years. 

The U-6 number that counts everyone who is seeking employment as a percentage of the labor market currently stands at 12.3.  So real unemployment is nearly double what’s actually being reported.  I’d mentioned in the Q&A that the average length of time out of work prior to the Great Recession was 10-15 weeks.  During the Great Recession the average length of time out of work spiked to 44 weeks and even today the average is 38-39 weeks or greater than 300% longer than prior to the Great Recession.  That’s why so many Americans are part of the longer term unemployed and are no longer being counted by the Government number:

Audio Report:


Home renos are hotter than the housing market:

Bottom Line:  Home renovations have reached their highest level in a decade as a one two punch of a recovering home sales market along with higher levels of home equity have led to significant pent up demand for overdue home renovations.  So what are we fixing up?  According to the National Association of Home Builders:

·         74% of home renos over the last year have included at least one bathroom

·         71% have included a kitchen

·         39% have included Window and door replacements

·         38% have been a whole home gutting and remodel

·         36% have included room additions

Those are all expensive projects which speak to just how pent up the home renovation market really has been due to the housing crisis. 

Audio Report:


Now that 401k balances are on the rise again - so are loans:

Bottom Line:  The good news…  As I reported last week according to Fidelity the average 401k balance has grown by 92% in the past 5 years to greater than $88,000.  The not so good news…  As 401k balances grow so are loans from 401k plans.

·         20% of eligible 401k plans currently have loans taken out against them

·         The average outstanding loan balance against a 401k is $7,600

So why is the not a good thing?  Your 401k, if you have one, is likely your most valuable retirement vehicle.  You can certainly contribute much more to it each year than IRA’s.  The only time I’m onboard with the concept of a 401k loan is for the purchase of a home.  Virtually all 401k plans have penalty free loans for qualified home purchases.  At least with the home purchase your money is going to something that you live in and generally is the second best investment class (real-estate).  Unfortunately what I see most often with 401k loans isn’t a positive. 

Many people take loans and/or withdrawals from their 401k’s to try to bridge a bad economic period of time in their lives.  In many cases it only buys a little extra time and the bigger problem isn’t fixed.  Your 401k is protected, even in bankruptcy and it’s extremely sad to see people who burn through their 401k and then go bankrupt anyway.  For many people, in my opinion, it may be a better option to go bankrupt rather than tapping a 401k account (though you certainly should consult legal professionals prior to make that serious decision). 

Audio Report:


We're warming up to the idea of wearable tech but here's what needs to happen:

Bottom Line:  If you think about it, for as much conversation as there has been about wearable technology, there hasn’t been a successful product yet.  Every wearable tech device that has come to market has been a bust.  From Sony’s multiple smart watches, to Samsung’s Galaxy Gear (both generations), to Nike’s now defunct health watch and even Google’s uber expensive Glass product that didn’t test well at all at its $1500 price tag.  Still about half of Americans are open to the idea of buying wearable tech but here’s what we want:

According to Nielsen:

·         72% of us say that wearable tech is too expensive

·         62% say that they wish there were more than watches

·         53% said they wish it would look like jewelry rather than a technology product

So…  With that in mind it’ll be interesting to see if the message is quickly received. 

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