Dismal Unemployment Rate Likely Friday

by Dennis Jacobe, Chief Economist

Gallup’s model suggests January’s unemployment rate will exceed the 7.5% consensus estimate

PRINCETON, NJ -- Gallup's projection, based on more than 8,000 interviews conducted in January, suggests the January unemployment rate will exceed 7.5% when the Labor Department reports it on Friday. This would be a jump from 7.2% in December, 6.8% in November, and 4.9% a year ago.


More Bad News on Jobs

The U.S. economy lost 2.6 million jobs in 2008 -- the largest annual decline since World War II. Jobs were lost in every month, with more than a million jobs disappearing in November and December alone. No matter what job numbers the Bureau of Labor Statistics reports on Friday, Gallup's data suggest that not only is the jobs situation bad, it is actually getting worse.

Gallup's unemployment rate model is based on U.S. employees' perceptions of the jobs situation at their companies. A year ago, monthly net new hiring (the percentage of employees who said their companies were hiring minus the percentage saying their companies were letting people go) was at 28. By September it had fallen to 17, before plunging to -1 in December and -4 in January 2009.


The monthly trend in Gallup's Net New Hiring measure is inversely related to the U.S. unemployment rate and, based on its 12-month history, the measure provides Gallup with a better than 8-in-10 chance of accurately estimating the unemployment rate's future direction. Of course, many factors make such projections difficult, with probably the most important of these being the potential for job seekers to get discouraged and stop looking for work (and thus not be included in the government's official unemployment rate). As the jobs situation worsens, the size of the labor force often shrinks, reducing the percentage who are reported as unemployed.

Time to Create/Save Jobs

The jobs crisis is not news to most Americans, nor is the need for the government to take strong action to at least stabilize the job market. Americans are seeing an old-time political battle in the nation's capital between the Republicans' "trickle-down" economics (success on Wall Street and in corporate America will stimulate the economy) and the Democrats' "percolate-up" economics (added money for low- and middle-income Americans will be spent, and that spending will stimulate the economy). However, neither paradigm seems to directly address the worsening jobs situation -- let alone do so with alacrity.

If the current cascading jobs collapse is going to be halted, the Federal Reserve and the federal government need to act to provide consumers and businesses with "visibility." That is, businesses need the confidence to reasonably project that there will be demand for their products in the near future -- if not immediately -- while consumers need the confidence that their jobs won't simply disappear. Right now, neither has the needed "visibility." As a result, businesses are cutting jobs and consumers are pulling back until the future is clearer.

On Friday, the government will most likely report the loss of more than a half-million jobs in January and another surge in the unemployment rate. This in turn is likely to create a renewed urgency to pass legislation to address the rapidly deteriorating jobs situation. However, the mere passage of federal legislation is not going to solve the jobs problem. Legislators need to be able to tell Americans how many jobs the stimulus plan will create -- and how quickly it will do so -- and the nation's leaders will have to convince the public that those projections are realistic. If this does not happen, and do so very soon, the United States could continue to lose more than 500,000 jobs a month for many months to come, and total job losses this year could exceed those for all of 2008.

Survey Methods

Gallup's hiring measure is based on aggregated interviews with a nationally representative sample of more than 8,000 U.S. workers each month. Gallup asks current full- and part-time employees whether their employers are hiring new people and expanding the size of their workforces, not changing the size of their workforces, or letting people go and reducing the size of their workforces. Gallup's hiring measure is computed by subtracting the "letting go and reducing" percentage from the "hiring and expanding" percentage. The assumption is that employees across the country have a good feel for what's happening in their companies, and that these insider perceptions can yield a meaningful indication of the nation's job situation. For results based on these samples, the maximum margin of sampling error is ±3 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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