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Dec 05

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Making sense of the unemployment statistics – .4% unemployment drop is baloney

Last Friday, the Department of Labor released its first employment estimates for November 2011. Most news reports of the monthly unemployment data stopped at the headline rate, and then added some spin that the economy was getting better. An examination of the November 2011 data should cause one to be more subdued.

The unemployment rate is the percentage of those in the labor force who are employment, vs. those who are not employed. Here is the data:

Amount (000s) Percentage Change from Prior Month (000s)
Employed 140,580 91.4 278
Unemployed 13,303 8.6% (594)
Total Work Force 153,883 100.0% (316)

One might simplistically think that unemployed people got jobs, and so moved from one category to the other. In November, this clearly was not the case.  The number of people who are no longer “unemployed” dropped by more than twice the number of new jobs that got created. Nevertheless, the unemployment rate is 13,303,000 divided by 153,883,000 or 8.4%.

So where did these formerly unemployed people go?  To understand this, one needs to look at some other numbers that are part of the same report.  The population that is not part of the work force get that definition because they are supposedly not available or looking for work. The numbers for November follow:

Amount (000s) Percentage Change from Prior Month (000s)
Total Work Force 153,883 64.0 (316)
Not in Work force 86,558 36.0% 487
Total Population 240,441 100.0% 171

Those not in the workforce increased by 487,000. The Department of Labor defines those who have not looked for a job in the last four weeks as not belonging to the work force. So, if someone has given up looking for a job, the unemployment rate goes down. The Department of Labor describes this as follows in their press release for the current month’s statistics:

 In November, 2.6 million persons were marginally attached to the labor force, … These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)Among the marginally attached, there were 1.1 million discouraged workers in November, a decrease of 186,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in November had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities. (See table A-16.)

So, in November, the population grew by 171,000, and 278,000 new jobs were created.   An approximate 100,000 increase in jobs over population growth is OK news, but it is not the sort of jubilation that would arise if the unemployment rate really did drop by .4% in a single month.  For the 487,000 persons who are no longer part of the workforce, the celebration is notably absent. Expect the unemployment rate to change as the Department of Labor’s estimates are revised, and/or persons try again to find a job.

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

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