The ‘real’ February unemployment rate is closer to 9% after adding dropouts and misclassifications, analysis shows

Northgate Mall empty hall
  • While the February jobs report showed unemployment dipping to 6.2%, the “real” rate is much higher.
  • Fed Chair Powell and Treasury Secretary Yellen said in early 2021 the real rate is closer to 10%.
  • When accounting for misclassification and dropouts, Insider calculates the true rate at roughly 9.1% after February.
  • Visit the Business section of Insider for more stories.

February labor-market data published by the Bureau of Labor Statistics pegged last month’s unemployment rate at 6.2%. The true state of the economy is likely gloomier.

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen emphasized before the BLS report that the “real” unemployment rate likely stands closer to 10%. Such an unofficial measurement ropes in workers suspected to have been misclassified as having a job even though they’re actually on a COVID-19-related furlough and people who have stopped looking for work and dropped out of the labor force since last February amid the crisis.

Those populations are left out of the government’s benchmark U-3 unemployment reading – the number that stood at 6.2% after February. By Insider’s calculations, the “real” unemployment rate touted by Powell and Yellen stands at roughly 9.1% for the same period.

Other gauges used by BLS paint a similarly bleak picture. The U-6 rate – which includes Americans marginally attached to the labor force and those employed part-time for economic reasons – held at 11.1% in February, according to the Friday release. The gauge peaked at 22.9% in April 2020 but still has plenty of room to fall before reaching the pre-pandemic reading of 7%.

To be sure, the jobs report wasn’t all bad. By some measures, it was a sign of major improvement. Nonfarm payrolls grew by 379,000, handily exceeding the median economist estimate of 200,000 payrolls. The hospitality and leisure industries accounted for 355,000 of those new jobs, a signal that the sectors hit hardest by the virus and related lockdowns are steadily improving.

The diffusion index – which tracks how many sectors added jobs versus those cutting payrolls – returned to positive territory, signaling job gains are broadening. The labor-force participation rate held steady at 61.4% after declining the month prior.

The data underscores recent commentary from Fed Chair Powell on his economic outlook. There remains “a lot of ground to cover” before the US comes close to reaching the Fed’s maximum-employment goal, the central bank chief said. And while the unemployment rate remains a key indicator, other gauges are critical for judging the overall health of the labor market, he added. 

“Yes, 4% would be a nice unemployment rate, but it would take more than that to get to maximum employment,” Powell said.

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US home prices jumped the most in 7 years in December as the housing-market boom charged into the new year, Case-Shiller says

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland, Oregon.

  • The S&P Case-Shiller US home-price index rose to a 10.4% annualized increase in December, up from 9.5%.
  • The reading marks the strongest pace of price growth in seven years, according to a press release.
  • The data suggests the US housing market ended 2020 strong amid low inventory and record-low mortgage rates.
  • Visit the Business section of Insider for more stories.

US home prices surged through the end of 2020 as record-low mortgage rates kept demand at elevated levels, and a general inventory shortage propped up prices.

The S&P CoreLogic Case-Shiller US National Home Price Index posted a 10.4% annualized increase in December, according to a Tuesday press release. The gain follows a 9.4% annualized climb in November and marks the biggest single-month leap in seven years seen by the index, a leading national dataset.

S&P Dow Jones Indices’ 10-City Composite index rose to an annualized gain of 9.8% from 8.9%. The 20-City Composite rose to a 10.1% year-over-year jump from November’s 9.2% reading.

Phoenix, Seattle, and San Diego saw the biggest home-price increases among the 19 cities surveyed in December.

“These data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” Craig Lazzara, managing director and global head of index investment strategy at S&P DJI, said in a statement. “This may indicate a secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway.”

The housing market was one of the few pockets of the economy to see explosive growth through 2020 as new buyers rushed to scoop up dwindling inventory. The Federal Reserve’s decision to drop interest rates to nearly zero in March 2020 dragged on mortgage rates and, along with the onset of the work-from-home era, sparked a homebuying spree. The surging pace of sales for new and existing homes quickly left contractors struggling to keep up.

Though the Tuesday release shows the housing market’s rally set to continue into 2021, momentum has wavered in recent weeks. After the 30-year fixed mortgage rate sank below 3% for the first ever in mid-2020 and stayed there for months, it turned higher in mid-January, signaling the buying frenzy could soon cool.

This shift was one of several January and February datapoints indicating investors are growing wary of inflation leaping higher as the economy recovers. Rising inflation would likely correspond with rising mortgage rates and, in turn, slow home-price growth.

Still, the US housing market will likely thrive through 2021 as more forthcoming stimulus bolsters homebuying activity, Fitch analysts led by Suzanne Mistretta said in a February 16 note. The firm said it expects prices and mortgage volume to continue growing in 2021 due to consistently low borrowing costs and lasting supply constraints. Demand is likely to outpace supply until the effects of the coronavirus pandemic fade, the analysts said. In other words, there won’t be enough homes to go around for a while yet.

Market health could waver should job losses creep into previously unaffected industries and hit higher-income workers, the team added.

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