While the government next week is expected to say the unemployment picture continues its gradual improvement, one indicator shows this jobs market is the worst in a year and a half.
Widely followed pollster Gallup puts the nation’s unemployment rate at an ugly 8.6 percent in August, a startling jump from the 7.8 percent the organization recorded for July. When counting the underemployed, the rate zooms to 17.7 percent, off its 2013 high of 18.2 percent.
The government puts the jobless figure at 7.4 percent, and 14 percent when including the underemployed and those who have quit looking.
While Gallup’s numbers have offered significant divergences from the Bureau of Labor Statistics data, the two numbers had been running fairly close for most of the year. In fact, Gallup’s tally actually briefly slipped below the government’s in April when it recorded 7.4 percent, compared to the BLS number then of 7.5 percent.
Since reaching that April bottom, though, Gallup’s numbers have surged and tracked above 8 percent for August, reaching their highest level since hitting 8.7 percent in mid-March 2012.
The trend comes at a ticklish time for the economy.
The Federal Reserve is contemplating an exit from its quantitative easing program in which it buys $85 billion a month in Treasurys and mortgage-backed securities.
Central bank policymakers have tied the potential QE pullback to an unemployment rate—as recorded by the BLS—in the 7 percent range, while 6.5 percent would be the minimum hurdle before the Fed would start raising its target interest rate again.
(Read More: Keep Printing? Fed Stays in Game, but Exit Looms)
While Gallup’s numbers can be volatile, they have portended rises in the official rate.
The data set is limited, but in previous occasions when the divergence was more than 1 percentage point “the BLS unemployment rate was flat to up over the next three months,” Bespoke Investment Group said.
To be sure, there are major caveats.
The Gallup numbers are not seasonally adjusted, and surveying methodologies differ substantially.
“The BLS method is statistically more rigorous. With the Gallup, you’re basically doing a poll,” said Jacob Oubina, senior economist at RBC Capital Markets. “The Gallup is more of a sentiment-type indicator. Either way, the unemployment rate doesn’t really give you a good indicator of the true state of the labor backdrop.”
Instead, Oubina recommends focusing on the employment-to-population ratio.
The news doesn’t get any better there, though.
The government puts that number at 58.7 percent, a level from which it has deviated little over the past four years since the end of the financial crisis and Great Recession.
According to Gallup, that measure is 43.8 percent, plunging over the years from 63.5 percent in January 2010.
It’s not known whether the Fed is paying attention to what Gallup’s polling shows. If it is, the discussions at the September Open Markets Committee meeting over tapering QE could take on a different tone.
“The employment-to-population ratio is basically bumping along the lows of the cycle,” Oubina said. “We definitely still have a long way to go.”