As Derek wrote earlier, this morning, July's national unemployment rate decreased to 9.4% from 9.5% in June. Yet, in July 247,000 jobs were lost. So how did the unemployment rate decrease? And what does July's unemployment report really show?
First, here's the official Bureau of Labor Statistics report (opens .pdf), if you'd like to read the whole thing for yourself. Now let's tackle the question of how the unemployment rate could decrease while the number of unemployed actually increases. BLS's report notes:
The civilian labor force participation rate declined by 0.2 percentage point in July to 65.5 percent.
As a recession drags on for this long, and people are unable to find jobs, they begin leaving the workforce. They become discouraged regarding job prospects. BLS offers an unemployment rate that includes these discouraged workers. In June 2009, that was 10.1%. For July, it was 10.2%.
Given this change in unemployment including discouraged workers, I think it's pretty clear that the 0.1% decrease in the reported unemployment rate can be misleading. In reality, those who would like a job but don't have one increased by 0.1% up to 10.2%.
I should note that these figures are not seasonally adjusted. If you believe in adjusting these number based on season, then they are not as bad. The seasonally adjusted unemployment rate including the discouraged actually improved, moving from 10% in June to 9.8% in July. I'm not sure that I put much credence into discouragement having a lot of seasonality though, which is why I prefer the actual numbers.
What do these numbers mean in the broader context? That the unemployment rate is not necessarily going to decrease each month going forward. Once those discouraged workers feel more encouraged, they will begin looking for work again and will be included in the reported national unemployment rate until they find a job.
I don't mean to create a black cloud over today's results -- they are positive for many reasons. As Derek pointed out, the trend is definitely headed in the right direction. The jobs lost were the lowest in about a year. I just think we need to be careful not to get too excited about today's numbers. Although they appear to show a decrease in the unemployment rate, the deeper numbers show the contrary. We may see the light at the end of the tunnel, but we've got a ways to go.
By the way, here's how Atlantic Business readers did on yesterday's poll. Not particularly well! In fact, the reported unemployment rate of 9.4% was only chosen by 2% of respondents, less than any other option. Maybe we'll do better next month. Here are those results:
The 9.4% number is completely bogus, and not an accurate reflection at all of the situation in the workforce. The move to exclude "discouraged workers" from the data began way back in JFK's administration. The Reagan administration did its own tinkering, and there have been other "adjustments" as well. The real-world situation is probably best represented in the BLS' U-6 series, and that's showing an unemployment rate at around 16%. Of course, even that doesn't take into account the dramatic drop in number of average hours worked--down to 33 per week, the lowest since WWII.
In reality, the unemployment stats only track unemployment insurance. Job loss is tracked by new claims and continuing unemployment is tracked by ongoing claims.
The fact is that it's near impossible to come up with numbers. If a self employed individual has no work and is thus "unemployed", it's not reported. If a individual exhausts his coverage, and does not receive other public aid, it's unreported. There are many other examples.
There are other ways to track unemployment, such as discontinuance of workers comp insurance, etc. However, due to differences among states and localities, the tracking would be "difficult" to say the least and reported data would probably trail real circumstances by 6 moths or so.
For what it's worth, I agree with Mr Claudius. The frequently cited figure of 25% unemployment during the GreatDepression would probably be more like the 'U-6', 'unemployed and underemployed' number of 16+ %. But there are other considerations, too. No one in this recession has tried to estimate the size of the 'underground economy'. During the last really big recession (which for me lasted from '75 to '80) I did lots of work paid for with cash and not accounted for. And knew a couple of guys who made a nice living (comparatively) selling marijuana. There were articles that tried to estimate the size of this part of the economy (I remember thinking that they consistently underestimated it) but no one seems to be making the effort today.
And while I'm bitching....in the 'bad times' of the late '70s, there was a lot of talk about the 'money supply'. There was an M-1 and an M-2 money supply. This is a different recession, of course, but these were thought to be important. Today--they've disappeared. Puzzling.
You're not towing the company line, bub.
You might want to look for another job elsewhere, since you seem to be biased towards the facts.
According to your colleagues, the July jobs numbers look "great!"
Megan McCardle gushes: "The unemployment rate dropped 200 basis points, from 9.6% to 9.4%. That's great news."
I guess some are just more easily dazzled by BLS magic than others.
Incidently, I've reported you to the Reichsmarshal Douglass at flag@whitehouse.gov as a dissident spreading "fishy" information about the unemployment rate.
"The fact is that it's near impossible to come up with numbers."
Bullshit. It is a trivial task to come up with the numbers. First year journalism students - unmoved by bias towards the current administration - can do such simple work.
Here are the July numbers (direct from the BLS website):
Number of Unemployed (Not Yet Discouraged): 14,462,000
Number of Unemployed (Badly Discouraged): 2,282,000
Total: 16,744,000
Unemployment Rate: 10.2% (not 9.4%)
Trend: Up (not down)
The moral of the story is that if you are a journalist and you want to spin unemployment to seem like it is improving under Dear Leader, then the way to do that it is to uncritically retype BLS press releases.
If you want to be a professional journalist, then you can't just regurgitate what you've been handed by the Federal government.