A Merrill Lynch analysis of the nonfarm payroll numbers contains some good, some bad, and some ugly news.

The analysis, released on Friday, February 6, by Merrill North American economist David Rosenberg indicates that the actual unemployment rate, while normally higher than the official one by the Bureau of Labor Statistics, hit a level not seen since at least 1994.

First the good news: Inflation is not much of a threat as a result.

Now for the bad news: As Rosenberg explained, what the official unemployment rate misses is the vast degree of ‘underemployment’ as companies cut back on the hours that people who are still employed are working. Those hours have declined 1.2 percent in the past 12 months.

The BLS still counts people as employed if they are working part time, but the number of workers who have been forced into that status because of slack economic conditions has ballooned nearly 70 percent in the past year, according to the study. Rosenberg said was that was a record growth rate for the 15-year period he has studied.

And here’s the ugly part: When that amount of slack in employment is taken into account, Rosenberg found that the ‘real’ unemployment rate has actually climbed to 13.9 percent, an all-time high for the period he studied. And that figure is up from 13.5 percent in December and 11.2 percent a year ago.

As a result, the economist said worries that the federal deficit will lead to inflation anytime soon are misplaced.

“With this amount of excess capacity in the jobs market, and keeping in mind that the inflation process is dominated by the direction of labor costs, it is tough to believe that inflation at this point is anything but a far-in-the-distance prospect,” Rosenberg wrote. “A present-day reality it is not.”

Filed by Ronald Fink of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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