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