Was U-6 the Big Number in Friday's Jobs Report?

For ETF advisors, the measure of underutilized labor might be the most important part of the jobs report.

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Reviewed by: etf.com Staff
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Edited by: Ron Day

How below the radar did the U-6 version of the monthly U.S. employment report fly? 

Scarce mention of it was made Friday, even once a few hours after the jobs numbers were released. It's typically ignored by mainstream news reports, which focus on the U-3 figure, making it the one most people are familiar with and likely to quote. 

But to investors and especially investment advisors in charge of managing other people’s money—and especially their emotions—U-6 might be the most important part of the monthly release from the Bureau of Labor Statistics. 

The U-6, a measure of underutilized labor, tells a tale of the type of employment happening across the economy. The more common “jobs number,” economists will tell you, is more of a trader’s toy than an investment advisor’s tool. That's because though it shows how many new jobs were added during the previous month it's frequently revised, and often by large margins.

U-6, the Measure of Underutilized Labor

Unlike the popular U-3 rate, which came in Friday at 3.9%, U-6 includes everything in U-3, but also adds in those “marginally attached to the labor force.” It came in about double the U-3, at 7.8% not seasonally adjusted.

For instance, if someone is working a few part time gigs because they can’t find the right full-time role, they are under-employed. That’s not as bad as trying to get work and getting nothing, but it is not fully-employed either. U-6 also includes “discouraged workers” who have tried to find a job but perhaps have not found something that equates to their skill set. 

Picture a student with an advanced STEM degree, but they can’t get a job in a STEM field. This under-appreciated category not only includes those under-appreciated workers, but also captures those who have taken a break but now are attempting to return to the labor force.

Not a Shrimp 

So that’s U-6 in U.S. employment lingo, not to be confused with a U-6 sized shrimp, which I learned long ago means six to a pound. If you’ve ever had one, you know that “shrimp” is the last thing you’d call it! But I digress. 

What is emerging from “shrimp” status right now is the U-6 unemployment rate, and it is threatening to make a comeback. That’s not good for ETF investors who are committed to “buy and hold” equity investing.

It came in at a seasonally adjusted 7.3% in Friday’s report, after bottoming at 6.5% in December of 2022. The previous three moves off the bottom of this nature were at the start of the pandemic in 2020, in late 2007 and in early 2001. All three preceded declines in the SPDR S&P 500 ETF Trust (SPY) of between 33% and more than 50%.

That could be because U-6 digs deeper, into the heart of what may produce consumer uneasiness. What has kept the economy and stock market roaring has a lot to do with how confident investors and consumers feel about their jobs. 

It may not be about happiness in their current role, but rather the feeling that they could leave their job, even quit without one to move to, and still get a good job without much effort. U-6 might be showing early signs that this situation, which has been in place for about two years, might be changing.

Advisors can have this conversation with their clients, and it sends a clear message: “I look below the headlines, I don’t settle for what my competitors do, I am forward-thinking.” Perhaps the greatest value to advisors of U-6 is that it is the proverbial shrimp of the monthly employment report. 

But if history is a guide, it could be a lot more headline-worthy as 2024 continues.

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.