What The July Unemployement Rate Means (And Doesn’t Mean)
August 7, 2009
Today the unemployment rate for July 2009 was released by the Bureau of Labor Statistics. The rate dropped from 9.5% in June to 9.4% in July.
Before I explain why this might not be as awesome as it looks, let me just say “hooray!” for what seems like a slowing in the rise of the unemployment rate. I am ecstatic to see that the economy is not accelerating downward.
Stupid Moralizing (skip if you don’t care)
Some people seem to almost be cheering the decline of the economy for political purposes. Before last November, those people were mostly liberals. After January, those people were mostly conservatives. It is an activity I find creepy and slimy.
The decline of the economy means people losing their jobs, losing businesses that they’ve spent years trying to painstakingly build. This can be devastating on every level, personal and professional. The pain it brings is almost unspeakable. When someone cheers or hopes for a decline in the economy simply so that their political team can come out ahead, they reveal themselves to be without the basic human emotion of sympathy.
I don’t give a crap who is in office… I prefer to have a reduction in human misery if possible.
End of Stupid Moralizing
So… now that I’ve gotten all self-righteous and morally irritating, let’s talk about the numbers. (If you get bored by this discussion, feel free to skip to “The Point” at the bottom)
The unemployment rate is… well, it’s exactly what it says it is: a rate, a percentage based on two numbers. Your average non-economic American might think that the two numbers are as simple as “people employed vs. people unemployed”. Under this definition, you might think that a lower unemployment rate means that there are more jobs.
Sadly, you would be wrong.
The numbers actually start with the US population*. From that number, we take out children under 16, prisoners, those in mental institutions, those who require nursing care and the military and we get the “civilian non-institutional population”. From that number, we take out those who, for whatever reason have not tried to find work for 4 weeks. This is important because you don’t want to count housewives and high school seniors in the unemployment numbers. Remember that, because it’s going to be important in a second.
That brings us to the “civilian labor force”, which consists of the employed and the unemployed. It is from the civilian labor force that we calculate the unemployment rate. Therefore, there is a good way and a bad way to reduce the unemployment rate.
- Increase the employment number (good)
- Decrease the number of people in the labor force (bad)
The reason decreasing the number of people in the labor force is bad is that it means that people are extracting themselves from the labor force by:
- getting arrested in alarmingly huge numbers (unlikely)
- joining the army in alarmingly huge numbers (unlikely)
- getting younger in alarmingly huge numbers (that would be awesome)
- deciding that they’re just not going to look for a job anymore
And among the people in section 4, there are several options:
- deciding to stay home due to a lifestyle change (staying home with the kids)
- going to school to train for a new job
So, let’s cut to the chase. We’re not seeing new jobs. The employment number in July continued to decline (though at a much slower rate than it did in June). What we saw instead was a decrease in the labor force. More and more people are just not looking for jobs anymore.
On the surface the unemployment rate going down seems good, but when you dig into the numbers, we can see that it has nothing to do with an increase in the number of jobs and everything to do with the fact that the labor force is shrinking.
Is this good or bad? I tend to think bad, but the economy also tends to be really complex, so I could be misreading something or I could be just plain old ignorant. I’m not an economist, so I won’t make a pronouncement on that issue. All I can do is show the numbers and wonder what the hell is going on.
@D_B_Inman on Twitter pointed out that I was looking at the unadjusted numbers in my analysis and that the unemployment rate is based on the adjusted numbers. When taking that into account, my charts and extra analysis are strikingly ignorant. This is actually comforting, because it means things aren’t as out-of-whack as I thought they were. I’ve adjusted my “Point” accordingly.
* The Bureau of Labor Statistics lays this all out in more detail, if you want to check it out for yourself.
** There is something a little weird in this because the historical data at BLS doesn’t match up with their current press releases. According to their historical data, we saw an increase in the labor force in the last couple months. But according to their historical data, the current unemployment rate is 9.7%, which is not the number being currently reported. I took the numbers from their current press release and I substituted them into the historical data, since I’m assuming that their current press release is more accurate. If you think I’m wrong, please let me know why.