Recently I had a discussion on Facebook with a number of real estate investors about the unemployment rate in Michigan.  The discussion started when I posted a news article indicating Michigan’s unemployment rate has fallen below 10% for the first time in 3 years.  After looking into the published unemployment number a bit more, it becomes clear that the published unemployment rate is a little misleading.

Below is a chart showing the published historical unemployment rate for Michigan along with a plot of the labor force.

From this chart you can see that Michigan’s published unemployment rate currently stands at 9.8%.  The discussion really starts when you consider that the published rate includes a decline in the labor market of approximately 415,000 people since 2007.  Looking into the data a bit more, it seems that the published unemployment rate does not include those that would like to work but have stopped looking for a job.  This essentially happens when people stop receiving unemployment checks.

Perhaps a better estimate of the labor force would be the most recent peak in the labor force.  This happened in 2007 with a labor force of 5,072,000  So, if you recalculate the unemployment rate using the 2007 labor force, unemployment rate looks a bit more like the chart below.

Clearly the reduction in labor force has skewed the numbers.  Using the 2007 labor force, you can see that the unemployment rate jumps up quite heavily, and it would currently stand at 17.2% in Michigan.  However, this estimate probably swings things a little too far because if you look at the population statistics, Michigan lost approximately 167,000 people between 2007 and 2010.  This trend is expected to continue into 20011, and it is reasonable to assume that at least half of this population loss has can be applied to the labor force.  So, adjusting the labor force to account for the population loss since 2007 we arrive at the unemployment chart below.

 With this estimate, you can see that the unemployment rate is projected at 15.0%.  I believe this to be a much better estimate of the unemployment rate in Michigan.

Now, the actual unemployment rate can be debated, but to understand how the economy is moving it is much more important to look at the trend in the data.  No matter which method is used, the trend in unemployment since 2009 is downward.  There was an up-tick earlier this year, but this up-tick has fully reversed, and the recent trend is certainly downward.  Obviously the size of the labor force and how it is accounted for has a big impact on the unemployment rate, but based upon this analysis I am comfortable concluding that we are in a declining trend for unemployment in Michigan.  Of course we will continue to watch the unemployment rate and we will continue to apply the adjustments discussed here in this blog. 

I would like to thank those that have debated this with me, and I invite all to comment on this analysis.