Question: So when can 288,000 new jobs and a drop in the unemployment rate of four-tenths of a percent not be a good thing?

Answer: When you are discussing the U.S. economy.

Last Friday the Bureau of Labor statistics released the April unemployment statistics for the nation and on the surface, the economy appeared to have taken a step forward. Analysts had only predicted approximately 218,000 new jobs were added during the month and the additional 70,000 increase was a nice surprise. Also, the unemployment rate dropped from 6.7 percent to 6.3 percent, its lowest mark since September of 2008. However, as we have discussed in this space several times over the past five years, a person must dig deeper than these numbers to truly understand what is happening with the American economy.

During the month of April, the U.S. Civilian Labor Force Level fell by 806,000 people, meaning more than 800,000 American workers dropped from the working population either through depletion of unemployment benefits are stopping their search for work.

So the real issue with understanding the jobless rate is in understanding how the percentage is calculated. Previous to 1994, the unemployment rate was determined by the total number of employed divided by the civilian labor force level. However, under the Clinton Administration, the labor force level was redefined and no longer included workers who had been jobless for enough time they did not qualify for unemployment benefits or workers who had given up looking for work. What that change has left analysts with is a seemingly incongruent set of statistics.

For instance: Assume we have ten workers in November, seven of which are employed and three who are looking for work and have benefits. The U-3 jobless rate is 30 percent (three divided by ten).

Continuing the example, in December one new worker is added and two more lose their jobs. Also, two of the previously unemployed workers run out of benefits and the third becomes so disgusted he quits looking for a new job. The U-3 jobless rate for December is 25 percent (two divided by eight).

That explanation shows how fewer people can be employed in the U.S. but the jobless rate still fell.

Returning to the real world, here is the only thing you need to know about the most recent unemployment numbers: If the civilian workforce level had remained the same in April as in March, the jobless rate would not have dropped from 6.7 percent to 6.3 percent. The unemployment rate would have gone up to 6.8 percent.

That does not sound like an economy on the right track.

There is, however, a number used by the Bureau of Labor Statistics that does give a more accurate account of the strength of the employment market in the United States. This is known as the Labor Force Participation Rate. Just as the name suggests, it is the percentage of working age Americans who are employed.

In the above example, in November the participation rate was 70 percent (seven divided by ten). In December - even though the jobless rate was lower than the previous month - the participation rate was 54.5 percent (six divided by 11). When using that number for analysis, it is easy to see the economy was stronger in November than in December.

So what was the Labor Force Participation Rate in April? It fell to 62.8 percent. That represents the lowest ratio of Americans working since March of 1978 under the Carter Administration.

The next time you hear the White House touting the “good” unemployment numbers, you will know how to see if the statements are true.