• A total of 2.6 million jobs lost in 2008 – the most since World War II.
• A jobless rate that’s at 7.2% – and climbing.
• About 11 million people out of work.

As usual, however, the “official” numbers don’t tell the entire story.

“People say that they know how bad the economy is. But they don’t know how it feels to have the reality hit home,” said Stu Schweitzer, global markets strategist at J.P. Morgan Chase & Co.’s Private Bank (JPM). “It’s not the facts — it’s how the facts feel. And it feels terrible to have so many Americans losing jobs, and so many more likely to follow in the coming months.”

As it did last week with the government’s inflation statistics, Money Morning will now take an in-depth look at how the U.S. jobless situation may be a lot worse than the U.S. government statistics appear to show.

And “how it feels” comes home to roost with a behind-the-scenes look at the dramatic impact those horrific numbers have on the lives of just a few people caught in the crossfire.

Government Unemployment Numbers — Not What They Seem

The official government estimates of the current unemployment problem are staggering in their own right.

• 791,000 manufacturing jobs were lost in 2008, hitting the auto sector hardest.
• 260,110 people lost jobs in the financial sector, part of the overall service sector that accounts for some 80% of all employment.
• The construction sector shed 899,000 since peaking in September 2006.
• The retail sector shed 522,000 jobs for all of 2008.

All told, 2.6 million people lost their jobs in 2008. And, to underscore the accelerating nature of the problem, more than half of those job losses occurred in the final four months of the year. In December, a total of 11.1 million were unemployed. An additional 8 million people were working part time – up sharply from 7.3 million in November.

The average workweek in December fell to 33.3 hours. That’s the lowest average on record, dating back to 1964, and a sign of more job reductions to come since businesses often cut hours before eliminating positions entirely.

Those are the “official” government numbers. But, as a closer look demonstrates, the unemployment figures can be understated – and misleading.
The government actually compiles unemployment figures in six different categories; as you might expect, the numbers tend to minimize the bad news.
The most commonly number quoted in the media is the “official” unemployment rate – known as U3 (the bottom line of the three in the chart below) – which now stands at 7.2%.

But to get the real picture, you have to add both in what the government refers to as “discouraged” workers (U4) and “marginally attached” workers (U5) – those who have stopped looking for work, or who haven’t looked for work recently (represented by the middle line of the three in the chart).  That number (U6) depicts an unemployment rate t that’s approaching an eye-popping 14%.

And it gets worse.

If you include the people that the government doesn’t even count – such as unemployed farm workers, the idle self-employed, and workers in private homes – the unemployment rate approaches an astonishing 18% (top line).

In other words, unemployment has insidiously spread to almost one-fifth of the U.S. work force, a number much larger than the single-digit figure commonly bandied about in the press.

If you regard unemployment statistics as an important means of gauging the overall health of a given economy, these “enhanced” statistics paint an ugly picture of just how painful this financial slump has become for the U.S. economy.

Layoffs of this magnitude are more than a mere shot across the bow of the economy; they’re actually a direct hit amid ship – below the water line, meaning that sinking is inevitable.

Fully 70% of all domestic economic activity is powered by consumer spending. People who are unemployed cannot buy homes, don’t shop heavily in retail stores, cut back on groceries, and are loath to take on added risk.

The numbers alone are bad enough.  But in America’s heartland, many of the approximately 80% of workers thatarestill working are caught in the grip of unemployment vise as well.

No Runs, No Hits, Many Errors

Not only are record numbers of Americans suffering without jobs – they can’t even tell their troubles to a human being anymore. Most now have to navigate hard-to-use electronic systems, faceless entities that are ill-prepared to help so many people file for much-needed unemployment benefits.

With about 4.5 million Americans collecting jobless benefits, state government web sites and phone systems used to file for benefits are being overwhelmed by sheer numbers.

Electronic unemployment filing systems have crashed in at least three states amid an unprecedented crush of thousands of newly jobless Americans seeking benefits. Other states are adjusting their systems to avoid being next, The Associated Press reported.

Systems in New York, North Carolina and Ohio were shut down completely in early January by heavy volume and technical glitches. Labor officials in several other states are reporting higher-than-normal use.

And even some of the systems that are holding up under the strain are leaving filers on the line for hours before asking them to leave a message.
Still others are giving them the ultimate slap in the face: “We’re sorry, all circuits are busy.”

“Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated,” Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, told The AP.

To stabilize a phone system that has been overloaded for weeks, his agency boosted its staffing of telephone operators by 25% last month.
“We sympathize, we’re on their side, we’re doing our best to help them out,” he said.

Job Losses Gets Personal for Truckers

Depending on your geographic location, you might not notice when an automobile plant closes – but truckers do.

Any business closing – and the resulting layoffs – represents another loss of steady work for truckers, who are responsible for the movement of about 0% of the nation’s freight, including food and hard goods.

As many as 785 trucking companies with a combined fleet of 39,000 trucks went out of business in the third quarter of last year.  Overall, more than 127,000 trucks, or 6.5% of the industry were idled in 2008, Donald Broughton, trucking analyst and managing director of Avondale Partners, told The Los Angeles Times.

That means tens of thousands of drivers previously on company payrolls are now competing with the nation’s independent owner-operators for a piece of a fast-shrinking cargo pie.

Joe Rini, from Grand River, Ohio, recently bid $3,400 to haul a load of building materials to the Pacific Northwest for one of his best customers.  Usually, the load would pay $4,400, but with possible competitors in mind, Rini lowered his bid and got the contract.

Still, before he could pick it up, another trucker low-balled him with a bid of $3,000.  Rini declined to match.

“I didn’t want to bid that low in the first place,” he told The Times. “I start down that road and I’m out of business.”

Elsewhere, fleet operators who so far have managed to survive are putting increasing pressure on their sales force to maintain revenues.

Despite being in the hauling business since the 1860s, Ventura Transfer Co. of Long Beach, Calif. is feeling the squeeze.

“Gone are the days where you can own a trucking fleet and just rely on the demand of the marketplace,” said Brian Olsen, Ventura Transfer’s chief executive officer.

California Dreamin’ No More

Even though he’s had no trouble so far staying gainfully employed in California, Mike Reilly, a 38-year-old engineering contractor, is leaving his home state’s lemon groves and beaches for the foothills of Denver.

California has often been called the “promised land” since the days of the Gold Rush.  But in 2008, many families gave up their California dream and headed elsewhere.

With an unemployment rate of 8.4% in November, and a record 236,000 foreclosures on the books in 2008, the Golden State has lost some of its allure.

Barry Hartz lived in California for 60 years before moving close to his son’s family in Colorado Springs.  Despite recent price declines from a glut of foreclosures hitting the market, he laments the escalation of home prices in the early 2000’s, “to the point our kids…could not live in the community where they grew up.”

The number of people leaving California outnumbered those moving in by a net total of 144,000 in the first six months of 2008 – more than any other state, the Associated Press reported.  For the first time ever the state could lose a congressional seat.

With the state facing a $42 billion budget deficit, further tax increases and education cuts were the last straw for Reilly, the engineer.

“You see wages go down and the cost of living go up,” he said.  Years of rising taxes, unchecked illegal immigration and bumper-to-bumper traffic have convinced him to move on.

What’s Next …

Overall, 48% of all companies downsized in 2008, and a staggering 60% are planning reductions in 2009, according to a Society of Human Resource Management survey.
Economists predict a net total of 1.5 million to 2 million or more jobs will vanish in 2009, and the “official” unemployment rate could hit 9% or 10%, underscoring the challenges that new U.S. President Barack Obama will face and the tough road ahead for job seekers.

Obama has called the jobs losses “a stark reminder of how urgently action is needed” to revive the nation’s staggering economy. His administration is planning a stimulus package costing upwards of $800 billion, consisting of tax cuts and other ways to try to help individuals and businesses.

But unemployment is feeding into a vicious cycle that Washington policymakers are finding difficult to break.  The jobless are now forcing almost all U.S. consumers – employed or not – to retrench for an uncertain future.

Source: U.S. Unemployment May be a Bigger Problem Than Government Statistics Say

Of all food categories, prices for cereal and baked goods hit U.S. consumers the hardest, zooming 11.7% in 2008 over 2007. Prices for meats, poultry, fish and eggs gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products advanced 2.7%.

It was the second straight year U.S. consumers were forced to pay a lot more for their groceries. In 2007, food prices at supermarkets rose 5.6%. Prices rose only 1.4% in 2006.

Consumers had to pay the price last year because food makers battled the largest spike in commodities they’ve ever faced, walloped by duel increases in key food ingredients and fuel, which all marched to historic highs in July, a month in which crude oil peaked at an all-time record of more than $147 a barrel.

This major escalation in food prices calls to question contentions that inflation is not a problem, a stance that – on the surface – appears to be supported by government statistics that appear to be fairly benign.

“The notion that U.S. government inflation statistics are accurate has been the subject of intense debate for years,” said Money Morning Investment Director Keith Fitz-Gerald. “My own belief, based on nothing more than what I feel in my wallet, is that those statistics are more cooked than a Christmas goose. I hear the same thing from tens of thousands of investors that I talk to around the world each year.”

The Lowdown on Inflation

For instance, inflation averaged 3.85% last year, according to InflationData.com, which offers investors statistics that are said to be more-specific versions of government figures. But just like stock prices, the inflation figures were whipsawed from one month to the next. The monthly U.S. inflation rate actually eclipsed the 5.0% mark in June, July and August, and was still above 4.9% in September. By December, however, the inflation rate for the month was a nearly imperceptible 0.09% – the lowest rate for any month in this decade.

The “official” consumer price index (CPI) – the measure of price changes that directly impact U.S. consumers – also seems to indicate that we’re right now in a fairly benign environment for prices.

On Friday, the Labor Department said that consumer prices dropped 0.7% in December, slightly smaller than the 0.9% drop economists expected, Yahoo! News and The Associated Press reported. For the year, consumer prices as measured by the consumer price index edged up by just 0.1%, down from the increase of 4.1% reported for all of 2007 and the smallest annual change since consumer prices actually fell by 0.7% in 1954.

The Labor Department said that the big yearly improvement occurred because of the sizable declines in energy prices that we’ve seen in recent months.

The so-called “core” CPI for December – which excludes volatile food and energy prices – was unchanged in December. For the year, the core CPI rose a moderate 1.8%, down from the modest 2.4% increase for all of 2007. Price pressures have eased as the recession intensified, The AP said.

Even back in July – the month in which crude oil prices reached their all-time peak – the overall CPI was only up a reported 2.1%.

The U.S. government actually has an incentive to understate inflation rates, since scores of payments – ranging from Social Security payments to retirees, to the interest payments on inflation-pegged Treasury bonds – are pegged to inflation calculations.

“The U.S. government is suffering from attention-to-deficits disorder,” Money Morning’s Fitz-Gerald says. “Scores of financial calculations are based on the inflation rate, and the additional increases could boost the deficit by trillions of dollars.”

The government contends that the decline in inflation is due to the economic slowdown. Further evidence of that slowdown came Friday in a separate report from the U.S. Federal Reserve that showed that production at the nation’s factories, mines and utilities plunged 2.0% percent in December, capping the worst year for manufacturers since 2001. Last month’s drop, double the amount analysts expected, came after a 1.3% in November, which was even sharper than initially reported.

For all of last year, industrial production declined 1.8%, a major reversal from the 1.7% increase reported last year. It marked the worst showing since a 3.4% decline in 2001, when the country last suffered through a recession.

The theory here is that a drop in industrial output means there’s an accompanying drop-off in demand for commodities used to make the products, meaning there’s no need for price increases.

But, as we’ll see, that’s not the case.

Food Prices Still Escalating

For December, gasoline prices fell by 17.2%, the biggest monthly decline on records that reach back 71 years. Overall energy prices also dropped by a record 8.3% as home heating oil and natural gas showed declines.

For 2008, energy prices fell 21.3%, with gas costs tumbling by 43.1%.

The story was different for food, however. While food costs were unchanged in December, they rose 5.8% for all of last year – including the 6.6% increase at the grocery store.

Some experts say these CPI figures drastically understate the real situation with regards to consumer prices. ShadowStats.com, for instance, has posted a chart on its Web site that shows an “alternate” CPI that peaked at better than 13% last year, and that ended 2008 at nearly 8% – far above the “official” government statistics.

The problems emanating from the big increase in food and commodities prices weren’t limited to the United States, either. In April, the leader of the United Nation’s World Food Programme warned that a “silent tsunami” of hunger was sweeping the globe because of soaring food prices, a situation that threatened the well-being of an estimated 20 million children in the world’s most poverty-stricken areas. At that time, food prices had risen 83% in the previous three years, and rice – a staple of daily diets throughout Asia – had actually doubled in price in the prior five weeks.

Here in the United States, however, the reported 6.6% jump in food prices – and the increase in the producer prices that necessitated the increase in the price of the products at retail – had widespread implications.

For instance, Pilgrim’s Pride Corp. (OTC: PGPDQ), the No. 1 U.S. chicken producer, declared bankruptcy on Dec. 1, according to MarketWatch.com.

Analysts claim that relief is on the way – for producers and consumers alike. Commodity prices – particularly prices for corn, wheat and energy – have plummeted since peaking last summer. And inflation at the grocery store level has eased since prices reached their peak in September, the Labor Department says.

But real-world developments continue to contradict the predictions of research economists and the “official” government reports.

Price Hikes Play Out in the Marketplace

Just consider Kellogg Co. (K), the No. 1 U.S. cereal maker, and the producer of the Frosted Flakes and Rice Krispies brand cereals, as well as the popular Pop-Tarts breakfast pastries. Kellogg was to increase prices on all three plans to lift prices in the “low-to-mid single digit” range this week to help offset the increase in commodity costs. It won’t increase prices for its All-Bran and Special K brands, however.

Kellogg said it was raising prices because it sets pricing behind increases or decreases in the value of the commodities it uses. A spokeswoman said a 2008 price hike didn’t help the company recover all its manufacturing costs.

And that may not be the end. UBS AG (UBS) analyst David Palmer said in a research note that the price increases by Kellogg’s will likely be matched by rivaling companies – the ones that make branded products, as well as manufacturers that make so-called “private-brand” or “private label” cereals.

On Friday, Palmer upgraded Kellogg’s shares to a “Buy” from a “Hold,” noting the company’s price pricing actions and moderate input costs put the company in a good position to aggresively promote its products in 2009, The Wall Street Journal reported.

(Many analysts say that reasonably valued stocks can be sound buys during inflationary periods for this very reason – they can pass any increases in input costs along to consumers in the form of higher retail prices).

General Mills Inc. (GIS), Kellogg’s top cereal rival, would not say whether it will follow Kellogg’s lead, telling MarketWatch that it doesn’t comment on pricing decisions it may or may not take.

Ralcorp Holdings Inc. (RAH), marketer of the Honey Bunches of Oats and Raisin Bran cereal brands, increased prices last year.

Grocery-store operators often try and push back on price increases, something that discount retailer Wal-Mart Stores Inc. (WMT) is known for in the hardline goods world.

Supervalu Inc. (SVU) and the A&P Supermarkets (The Great Atlantic & Pacific Tea Co. Inc.) (GAP) have said they plan to negotiate lower prices with food suppliers, while Weis Markets Inc. (WMK) has instituted a price freeze through April 1 on 2,400 items it sells in 155 stores in Pennsylvania, Maryland, New Jersey, New York and West Virginia.

The mere fact that pricing is an issue with these supermarket chains underscores that price increases are a very real problem in the marketplace, meaning prices aren’t in the benign holding pattern many economists would have us believe.

Is the Financial Crisis Stoking Inflation?

Although the federal government says that the U.S. recession is reducing inflationary pressures, the opposite may actually be true – and the economic slowdown may actually stoke inflationary pressures, experts say. For one thing, even though stated interest rates are low, the fact is that there’s a credit crisis under way right now. That means banks aren’t lending. As a result, companies may be forced to look elsewhere for needed financing – financing that comes at a much higher cost.

And higher costs, as we’ve seen, are inflationary.

There’s also the massive bailout and stimulus packages the government is deploying to fight the financial crisis. To create the capital needed for these programs, the government is printing money. And that massive increase in the money supply can only be inflationary, says Money Morning Contributing Editor Martin Hutchinson, an expert on the global banking system. He believes inflation rates of 7% to 10% may well be in our future.

“Once the bottom has been reached, the excess liquidity that has been created over the last few months through the various bailouts – such the Treasury Department’s $700 billion Troubled Assets Relief Program (TARP), which is fueling bank takeovers, and not expansionary lending, and the follow-on $800 billion credit-market stimulus unveiled late last month – will combine with the huge federal budget deficit to spur inflation,” he said.

Source: Big Jump in Food Prices the Latest Suggestion That Inflation is Much Higher Than the Government Says