Is the Real Unemployment Rate 9.4% for July, or 10%?
Posted by Michael A. Kamperman on August 7, 2009
Was I surprised the reported unemployment rate fell from 9.5% to 9.4%? Yes I was. I expected the unemployment rate to rise. Especially since the Labor Department reported the U.S. lost another 247,000 jobs in the month of July. But I was also surprised last month that the unemployment rate rose by only .1% from 9.4% in May to 9.5% in June. In June, the Labor Department reduced the number of people wanting jobs from 155,081,000 to 154,926,000. Based on estimates for population growth we need to add about 125,000 jobs every month for the job market to absorb new entrants seeking work. By decreasing the active participation in the labor force by 280,000 in June, the reported rate of unemployment rose to only 9.5% instead of 9.7%. For the month of July, the Labor Department once again reduced the number of people wanting a job in America. This time the number dropped from 154,926,000 to 154,504,000. If the Labor Department kept the numbers of those seeking work in May constant with July and added the normal 250,000 new entrants into the ranks of those seeking employment, then the unemployment rate reported this morning would have been 10% and not 9.4%. In the last two months the Labor Department has added almost 1 million people to the ranks of those not in the Labor Force. This is the reason the official unemployment rate is the same in July as it was in May and not 10%. Just as with the GDP report, signs of economic weakness are being reported as signs of economic strength. In the U.S. 577,000 fewer people are earning a paycheck than were just two months ago, and we had more young people enter the workforce than older people retire, and yet our official unemployment rate is unchanged and the pundits declare the economic recovery is on.
Intuitively and intellectually it doesn’t make much economic sense that more people are leaving the workforce than entering it. If you are a stay at home parent and your spouse loses their job, then that means in many cases two people are looking for employment in your home rather than one. If you are a stay at home spouse and your working spouse lost a good paying job and has had to accept a job at much lower wages, then that means in many cases two people are looking for employment from your home rather than one. If you are a young adult going to school and Mom and Dad have to pull your financial support, then that means in many cases you are looking for work. It only makes sense that we have more people seeking employment when many households have declining, rather than rising, incomes.
While we may be entering a sustained period of economic growth, the data and the reaction by the White House and the Media means the economy will have to recover on its own without any further near term significant assistance from Washington. This is not a comfort to me when the “improvement” comes from a combination of claiming a 20% decline in exports over the last three quarters actually added to economic growth, and the way we are improving our unemployment rate is by no longer counting fellow citizens desperate for work. Perhaps the strategy of talking ourselves into recovery will work. However, woe is us if the recovery spin is wrong and we wasted an opportunity to head economic calamity off at the pass at Thermopylae.
