Stocks declined Thursday when the U.S. Labor Department announced that first time jobless claims rose by 12,000 from the preceding week to a total of 500,000. Continuing high unemployment might be the single most significant indicator that the economy remains in serious jeopardy.Economists, analysts and politicians that want to declare an end to the recession that began in 2008 seem to overlook the obvious importance of job growth in any meaningful economic recovery.  The connection to economic growth and employment is obvious. Consumer spending accounts for two-thirds of U.S. economic activity. People who don’t have a paycheck can’t spend money, so economic activity suffers.

For the past year, the reported unemployment rate has hovered between 9.5% and 9.9%. As explained in previous blogs, this number is called the U3 rate and does not accurately reflect all unemployed workers. For example, the U3 rate does not take into account discouraged workers who have not applied for a job in the previous month. A better gauge of total unemployment is the U6 rate. Over the past year the U6 rate has been between 16.5% and 17.1%. It is easy to argue that even the U6 rate does not give a true picture of the employment situation. For example, it does not calculate workers who have had their salaries or hours reduced. It does not take into account independent business owners whose earnings have dropped.

Consider this information from a commentary by Brett Arends in the Aug. 13 Wall Street Journal:

“The jobs picture is much worse than they’re telling you. Forget the ‘official’ unemployment rate of 9.5%. … Just 61% of the adult population, age 20 or over, has any kind of a job right now. That’s the lowest since the early 1980s—when many women stayed home through choice, driving the numbers down. Among men today it’s 66.9%. Back in the ‘50s, incidentally, that figure was 85%, though allowances should be made for the higher number of elderly people alive today. And many of those still working right now can only find part-time work, so just 59% of men age 20 or over currently have a full-time job.”

Most people are keenly aware of the massive increases in government spending over the past couple of years. The current concern about deficit spending results from knowing that future workers will be paying for today’s programs. If there are fewer workers, the debt burden will be much greater for those who are working. Some of that money was designated for propping up the financial system. Some of it was earmarked for stimulating the economy and job creation. While some might argue that the economic picture is brighter than it was two years ago, unemployment numbers have seen no significant improvement.

Until that occurs, any claims about real economic recovery must be viewed with suspicion.

F.S.