Gallup’s model suggests February’s unemployment rate may hit or exceed 7.8%
PRINCETON, NJ -- Gallup's unemployment-rate model predicts that the government will report a worsening of the U.S. unemployment rate on Friday. Gallup conducts more than 8,000 interviews each month with U.S. employees, to ascertain their perceptions of the job situation at their companies. 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 -6 in February, worse than the -4 of January. Both are substantially worse than the 28 score of January 2008.
Unemployment Continues to Worsen
In February 2008, the U.S. unemployment rate was 4.8%. By January 2009, it had reached 7.6% -- its highest level since September 1992. Gallup's projection, based on its Net New Hiring survey results, suggests the February 2009 unemployment rate is likely to reach at least 7.8% when the Labor Department reports it on Friday. A 7.8% unemployment rate would be the worst such rate for the United States since June 1992; anything higher would be the worst since at least January 1984.
The monthly trend in Gallup's Net New Hiring measure is inversely related to the U.S. unemployment rate and, based on its 13-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 job situation worsens, the size of the labor force often shrinks, reducing the percentage reported as unemployed.
Job Market Getting Worse
On Thursday, the government is likely to announce that continuing jobless claims hit another new record, exceeding the previous high of 5.1 million reported for mid-February. This is likely to be followed on Friday by a report pointing to the loss of more than 600,000 jobs in February and another surge in the unemployment rate. Over the past several months, job losses have declined sharply. Worse yet, the job market decline seems to be not only continuing unabated but actually accelerating.
What seems to be happening is that many companies are going into survival mode: simply doing whatever they can to get out in front of plunging consumer and business spending. Companies are reducing inventories, cutting capital spending, and letting people go at an unbelievable pace, as reflected by Gallup's Net New Hiring measure. In turn, as businesses cut back and unemployment increases, consumers pull back even more, and a vicious downward spiral is created.
While it hasn't been long since the Congress passed and the president signed a historic stimulus bill and announced new federal housing assistance, there is no evidence so far that these unprecedented efforts have created the significant improvement in consumer, small-business, and investor confidence that is needed to break this downward plunge. In this regard, it may not take too many more unemployment reports like the one likely to be delivered Friday before the current murmurs about another fiscal stimulus bill become a lot louder. On the other hand, effective actions that bring to an end the continuing banking crisis and related consumer/small-business credit crunch would go a long way toward ending those murmurs.
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.