What The September Unemployment Rate Tells Us (Or, How I Learned To Start Worrying and Hate the BLS Data)

October 5, 2009

Latest unemployment data has come out and the people who were claiming “ah, but job losses are slowing” were smacked down and sent to the corner to think about what they’ve done.

The unemployment rate was up .1%, from 9.7% to 9.8%. That’s not so bad, right?

To speak frankly, the unemployment rate tells so little of the story at this point that it’s hardly a useful metric. If you’re looking for a useful metric, start looking at the raw unemployment numbers.

The problem with the unemployment rate is that it doesn’t compare the employed with the unemployed. Instead, it compares people who are employed with those who don’t have jobs, but have looked for a job in the last 4 weeks”. This make a certain kind of sense; we don’t want to count stay-at-home dads or retired individuals as unemployed.

However, this means that an exodus from the workforce could mask the severity of the job situation. To illustrate, I’ve created a visual:

20peopleEmployed

Let’s say we have 20 people in the workforce and 2 of them fit the technical definition for unemployed, which means that they’re actively looking for work. That gives us an unemployment rate of 10%.

20pepopleWithX

Now, let’s say one of the unemployed people got tired of being unemployed and decided to go back to school. She has now removed herself from the labor force, so we don’t count her when we count unemployed people. Let’s also say that one of the employed people lost his job and instead of looking for a new one, he decided to simply retire.

18peopleEmployed

As you can see we haven’t added any jobs… in fact we have fewer jobs than we did before. But we took a higher percentage of people out of the “unemployed” group than we did out of the “employed” group. It’s now 1 person unemployed and 17 people employed. We’ve “slashed” the unemployment rate to 5.5%.

This current job report is actually a perfect example of this. We lost 785,000 jobs this past month. That makes it the biggest month of job losses since March. But the number of people in the unemployed group rose only 214,000. This is because  we saw over twice that number simply leave the work force altogether.

If we took employment numbers for this month compared it to the labor force for last month, we would have an unemployment rate of 10.2%… almost a half a percent higher than the one we have!

I try to be an optimist, but it is hard to see this report as anything but a disaster. Furthermore, we are so far into the implementation of the stimulus, that I have a hard time seeing it as anything but a huge failure. I understand that only about 10% of the stimulus has actually been spent, but part of the point of the stimulus was to get money out into the economy in order to inject a little cash flow into the situation. That means that a huge part of the success of the stimulus relied on getting the money out in a timely manner.

I know that defenders of stimulus theory would object that it takes time to spend $800 billion and that you can’t spend that much very quickly without massive fraud. To which I reply: “Well, duh.” I think that’s a great argument against the stimulus and I wish they had brought that up back in February and March instead of bashing people like me for bringing that up back in February and March.

Back to the point, we have seen job growth in only one month out of the last 17. We need to stop focusing on the unemployment rate and start looking at raw jobs data. Only when we see the raw number of jobs start rising consistently can we be confident of economic recovery.

Note: To be fair, jobs tend to be a lagging indicator, but outside the stock market increases, I’m seeing little reason to be optimistic. And, quite honestly, the stock market seems to be very excited about absolutely nothing. It’s like they’re throwing a champagne party because the world hasn’t ended, neglecting the fact that it is still on fire.

22 Responses to “What The September Unemployment Rate Tells Us (Or, How I Learned To Start Worrying and Hate the BLS Data)”


  1. [...] The Unemployment Numbers Political math lays is out for you. The real number instead of 9.8% would actually be 10.2%, without the [...]


  2. [...] September Unemployment @ 9.8%? I call BS! Oct 5th, 2009 | By QC Watchdog | Category: Federal Government Really, you think unemployment is “only” at 9.8%?  I won’t reinvent the wheel here trying to explain why I think unemployment is more around the 20% mark when my good friend over at Political Math explained the situation very well.  Check out his post on the subject here. [...]

  3. Al Says:

    The first thing that came to my mind while reading this was the number of college students who left the workforce in September to return to school. I assume these jobs were counted in the raw data for August?

  4. politicalmath Says:

    The BLS keeps two separate statistics of the workforce. The first one is “unadjusted” in which they just deliver the raw job numbers. The second one is “adjusted” in which they control for factors such as the school cycle and other seasonal hiring and firing practices (for example, employers always dump a ton of employees at the end of the year).

    If this were attributable to college students who enter the work force in May and leave again in September, we would see this drop every year. Instead, we’ve actually seen the work force grow in September for 6 of the last 10 years, which indicates that going back to school is not an explanatory force behind this drop.

    • politicalmath Says:

      And I guess none of that answered your question… the numbers I’m using are the adjusted numbers for September.

  5. CapitalGGeek Says:

    I also saw that the number of HOURS worked was down significantly. That seems to indicate that companies are cutting back hours to keep the same number of workers, instead of laying them off.

  6. Jake McKenzie Says:

    This is a bit off topic could you possibly do a visual representation of governmental income earned from todays income tax and the proposed national sales tax, dubbed as the ‘fair tax’.

    I have been trying to find information, and have only been lucky from a state and local level on sales taxes. Listen to economist talk about it, they either tend to be highly critical or fully in support with little data in between.

    I am of the opinion that it would do more harm than good. At a time when Japan, I would argue America’s most important economic partner is showing a lot of distrust toward the US. A time when China an emerging economic power is making plenty of power grabs. A tax that would tax our spending would seem to lead toward a cap in consumption, which to the countries that do business with the US(especially the two listed above) would immediately feel the effect and act hostile towards the US.

    Aside from that, it seems like it would be tax farming for the poor and middle class who inadvertently because of their wages save less each year in the bank and consume more of their income on essential goods and services. A sort of rebate to fix this problem has been proposed but what has been proposed seems apathetic to this problem.

    If this tax was truly and end to income tax I would consider it, but I have little idea on compiling this sort of data and much cynicism for the proposed fair tax.

  7. KB Says:

    When people decide to return to school, that is likely to help the unemployment figure down the road. When a student gains more skills, a degree, whatever – they are more unemployable. They re-enter the workforce in a stronger position.
    This is more of a philosophical view here – but, when there are less jobs available than workforce (which of course is always the case even at an optimal unemployment rate), the better candidates get the jobs. At the core here is supply and demand, it’s a buyer’s market (the employers), selecting the best fruit in the bin. To compete you have to grow yourself into a more ripe fruit and be more desirable.
    That some would leave the workforce now to go to school may start from a place of frustration but shows ambition and optimism for the future. Sure this is all painful now when there are bills to pay and all must eat! But that is our system.
    Retiring – if that is an option that some are taking, then it must have been an option anyway, good or bad economy, yes? And perhaps those will come back when things are better.
    How do the numbers account for people who decide to work for themselves. For example, instead of waiting to land a job, someone starts their own business. Do we have some comparison of the unemployment rate to the number of new companies started or people going freelance (which is a thriving market).

    I feel sad for people who have a hard time adapting. I have a friend who was laid off from working for a newspaper. First off, I don’t know what he was thinking that he would have a long time career in that dying industry, especially when a year ago they made him work an extra week for no pay just to keep his job. Anyway he has a certain set of art and computer skills (he is an expert at Flash if you know what that is). His skills are in high demand in the freelance market but his mindset is stuck on “I have to get another job.” I did some calculations that show he could increase his gross income by 50-75% by freelancing, but he can’t bring himself to do it. It’s fear of course. Many people cling to the familiar even when it is not in their best interest.

  8. KB Says:

    Oops meant to say people are more employable after attending more school, not more unemployable. I should have waited for the coffee to kick in.


    • PoliticalMath, are you sure extra education or training makes a person more employable? Do you have trustworthy statistics for that?

      IMHO, a given person is equally likely to gain employment, whatever his education level. The quality of the available employment may well improve with education, but not the likelihood of being employed. Just my own observation; YMMV.

      • politicalmath Says:

        According to the stats at the BLS, people with a higher education level are more likely to have a job. However, we have not seen the unemployment rate drop as the US has become more educated. As the population as a whole has greater and greater educational achievement, we’ve seen GDP rise, but we haven’t seen unemployment fall.

        Education makes perfect sense from a individual point of view… people with a higher education are more likely to have a job and as unemployment has risen in this latest recession, it has risen most among those with a lower education. But we didn’t seen unemployment as a whole fall due to an increase in the education level as a whole.

        If you’ve got some data that proves me wrong, I’d love to see it.


  9. [...] to numbers, and even they paint a scary outlook for unemployment. We lost 785,000 jobs last month: What The September Unemployment Rate Tells Us (Or, How I Learned To Start Worrying and Hate the BLS … (First 4 paragraphs below, but use the link for the complete analysis and graphs.) What The [...]

  10. Greg Raven Says:

    “Exodous” should be spelled “exodus.”

  11. Joshua Says:

    Excellent post, as usual. Great graphics and very thought provoking! I have a blog post coming out about Obama & Al Gore winning the Nobel Peace Prize and I put some interesting facts/figures in there.

    I was hoping you would do a post of your own in regards to the flight costs I mention and answer my question, “How much has been spent so far into his presidency on this all together?” I think it would drop some jaws, especially if you made a video to depict it.

    You can find my post here: http://qcwatchdog.datsure.com/?p=222

    Secondly, think you can add me to your blog roll on the right under a new heading called Political Commentary and a pseudonym of QC Watchdog?

    Keep up the great work!

  12. KB Says:

    per this:
    “are you sure extra education or training makes a person more employable? Do you have trustworthy statistics for that?”

    Viewing this logically, consider if a person has skills A,B, and C. They go for more education, and gain skills D and E. Now they are able to handle a wider arena of tasks. But no, this does not mean absolutely they are more employable. It does mean though that they can apply for more jobs than before.

    It could work against them, as now someone looking for a B or C worker will consider them overqualified. Even so, not relying on any quantitative data, more opportunities to pursue is likely to lead to one of them working out. Historically, education, and more of it, is beneficial or why would the market not have made education unpopular – less demand? Doesn’t seem like that is the case.


  13. [...] would recommend checking out Political Math – not just this entry, but others – for clever insight into some of our situations broken down in plain speech, and [...]


  14. [...] (10)What The September Unemployment Rate Tells Us (Or, How I Learned To Start Worrying and Hate the BLS … Possibly related posts: (automatically generated)Colorado Becomes First to Have 2 Black Legislative LeadersGov. Bill Ritter supports the idea of bringing terror suspects to Colorado …Are Democrats Losing Colorado? Looks That Way!Colorado Minimum Wage Will Drop By 4 Cents WIth Cost Of Living [...]


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