The Unemployment Rate Drops

Well it drops a little: from 10.0% to 9.7%. Today’s report from the Bureau of labor Statistics is chock full of information – 42 pages of it – and after having read through it I end up pretty much where I began.

Here are the headlines:

Obviously it is good news that the unemployment rate fell, which leaves us with 14.8 million unemployed workers. Or at least that’s the number of people who say they are unemployed and have been trying to find work sometime in the past four weeks. Basically what seems to be happening is that the economy has bounced slightly up from the bottom it hit late last year and is now inching sideways. We are essentially back where we were last August. Remember that the unemployment rate is calculated from a survey of households conducted every month – it is not a survey of businesses, so it reflects what workers say and think about the job market rather than attempting to count actual jobs.

The reason I say we are inching sideways and not growing is because the establishment survey the BLS publishes at the same time tells us that we lost 20,000 jobs last month. This is the attempt at counting actual jobs and the report is based on the annual survey the BLS performs of business payrolls.

So the two data points appear to be in conflict until we realize that they are both samples drawn from different populations. That one says we are improving while the other says we are declining is simply a statistical quirk with no real meaning.

I realize that makes it all sound rather murky – and it is.

So what do the numbers mean?

That the outlook in the job market is still poor, but that it is no longer deteriorating. The rot of last year appears to have ended and we are now taking the first hesitant steps towards recovery. The drop in payrolls is too small to mean much – recall it is based on a sample – so we can state with confidence that nothing much happened on the payroll side.

On the household side thing seem to have perked up just a bit, but there are very worrying numbers lurking beneath the surface.

The number of long term unemployed workers continues to rise and is now 6.3 million which is an increase of 5 million since the recession started. This is the real figure we need to work on since long term unemployment is where most of the economic damage to a household can occur – skills degrade, experience is lost, and finances ruined. So as we go forward we all need to pay particular heed to this number.

Also worrying is the figure of 2.5 million workers who regard themselves as ‘marginally attached’ to the workforce. This odd phrase is used to describe people who are either discouraged and no longer looking for work at all or those who are looking less actively than in the past. Clearly this is also an ominous number we need to keep a close eye on.

On a slightly brighter note, the number or workers who were working part time involuntarily – they had been forced into part time status by their employers – dropped quite sharply from 9.2 million to 8.3 million. This suggests that there is enough activity throughout the economy to encourage plenty of employers to re-instate full time work hours. Again, we need to see this number drop much further before pressure on businesses forces them to hire new workers rather than simply relying on their existing workforce.

Overall the data shows that the bottom has been reached and that the very first stirrings of a comeback are underway. We should not declare victory yet – all the signs are for a very slow recovery and we need more effort to break the back of unemployment more quickly.

Nonetheless today’s figure is mildly encouraging.