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It is not a secret that the US economy is characterized by discrepancy between economic indicators and unemployment rate. In August unemployment at its 5.1% showed the lowest rate since spring of 2008.
From the one side is manufacturing output, and additionally lack of wages’ growth. From the other side is crawling pace of economic growth and employment.
Relationship between GDP and unemployment has been proved scientifically in 1962 by Arthur Okun, who observed relation and created Okun’s Law. In Okun’s statement of the law 2% increase in output corresponds to a 1% decline in the rate of cyclical unemployment; a .5% increase in labor force participation; a .5% increase in hours worked per employee; and a 1% increase in output per hours worked. However, further investigations will be made only under the main part of the law.
And in the contrary, every 2% decline of GDP corresponds to 1% increase of unemployment. Given chart shows real correspondence of Okun’s Law.
As observed, the law has been proving for many years until discrepancy in 2010.
Analysts at Zerohedge released this chart and reminded their followers how in 2012 the US slow economy had produced steady unemployment decline, raising too much questions.
“Something is way off: either the unemployment data is very much wrong and the real unemployment rate is far higher especially when normalized for the collapsing labor participation rate and the surge in part-time and temp workers, or the GDP calculation is incorrect and the economy is growing at a 4%+ rate,” say economists at Zerohedge.
Analysts at Zerohedge made a proposition that unemployment rates had been incorrectly calculated and decided to publish recalculations based on GDP indexes.
This means that since the last financial crisis unemployment rate has been rising and currently is near 12%.
It is likely, that Fed has already known about this situation, but does not announce it. It can be namely the reason, why Fed decided to delay tightening of monetary policy at the last meeting.