If you follow the US unemployment headlines (currently at 5.5%), you likely think that jobs have fully recovered. What if I told you that we are still 7 months away from peak full-time employment and that the unemployment rate is actually 10.8%? Don’t get me wrong—we agree that the labor market is healthy. But we want to make sure you are tracking the indicators correctly.
The graph below tracks full-time and part-time employment. The blue line shows we have not recovered all of the full-time jobs from the peak in April 2008—largely because of the heightened levels of part-time employment. Full-time employment has been increasing since 2011, but we still remain 7 months away from reaching peak employment (assuming a conservative 200K jobs are added each month).
We also track U6 unemployment rates across the country. The difference between the headline unemployment rate, the U3, and this more comprehensive unemployment rate, the U6, is explained in detail below the map. As of 2014, here are some of our key findings:
- The US average underemployment was 12%.
- 15% of Californians who should be working are not. The U6 includes agriculture jobs, which contribute to the high rate.
- Only 10% of those in Texas are underemployed, and the rate is even lower across the plains. Oil is a big contributor to employment health in Texas, Colorado, and the Dakotas.
- The coasts have more underemployment.
- The Southeast, Midwest, Southwest, and West are all still recovering.
- The heartland has recovered.
The map below illustrates US underemployment well. The redder a state is, the greater the underemployment; the greener the state, the less underemployment there is.
The 10.8% unemployment rate I mentioned earlier is the U6, and we believe it serves as a better proxy for real unemployment levels. It includes individuals who have stopped looking for jobs over the past four weeks and those who are underemployed.1 The headline unemployment rate excludes both of these groups. The post-2009 trend of elevated part-time employment (which includes new companies like Uber and Lyft) and underemployment makes the U6 particularly important to monitor. We have heard countless examples of graduates with college degrees who are working in positions they are overqualified for. The higher the U6 rate, the more people are not contributing to the economy at their full potential, let alone buying homes. Conversely, a lower U6 suggests a strong economy and healthy housing market.
The good news is that U6 unemployment has been trending down, which will have a spillover effect in the economy. Because a paycheck is the primary source of personal income for most Americans, its amount directly impacts consumer spending and can make or break an individual’s ability to get a mortgage.
In summary, the economy continues to mend from the Great Recession. At current rates, we will return to peak full-time employment at year-end.
 Underemployment includes highly skilled employees working in low-paying jobs, highly skilled employees working in low-skilled jobs, and those who are employed part-time but would prefer to be full-time.