Unemployment Rate Calculation

[GannonFan]

As is often the case with this number, a lot of head scratching. The US economy loses a net total of 20,000 jobs in January and somehow the unemployment number improves, fairly dramatically, from 10% to 9.7%. No word yet on whether we can cut some more jobs and really start to lower the unemployment number.

[dbackjon]

That is a head scratcher.

[mcveyrl]

That is a head scratcher.

The answer is (obviously) the calculation they use for unemployment.

This is shooting from the hip, but some of it is right (I think):
If you stop looking for work (even if you haven't found it), then you are no longer part of the "unemployment" calculation. If we lost 20,000 and unemployment dropped .3%, that means that .3% more than the 20,000 stopped looking for work entirely (i.e., went on disability, retired into Social Security, etc.).

I should add that there are a certain number of people that stop looking for work every cycle, so the fact that the jobs cut is less than that number of people is still a good sign (although not great).

[clenz]

I find it odd that it is down as well, especially since I heard during a CBS newbreak on the radio yesterday it would be announced at like 10.2

[mcveyrl]

That is a head scratcher.

The answer is (obviously) the calculation they use for unemployment.

This is shooting from the hip, but some of it is right (I think):
If you stop looking for work (even if you haven't found it), then you are no longer part of the "unemployment" calculation. If we lost 20,000 and unemployment dropped .3%, that means that .3% more than the 20,000 stopped looking for work entirely (i.e., went on disability, retired into Social Security, etc.).

I should add that there are a certain number of people that stop looking for work every cycle, so the fact that the jobs cut is less than that number of people is still a good sign (although not great).

I also just read the MSNBC story and it sounds like there are a couple of different surveys going on out there. One said we lost 20,000 jobs, the other said that 63,000 were created (minus construction).

http://www.msnbc.msn.com/id/35254011/ns ... nd_economy

A separate survey of businesses found that employers shed 20,000 jobs last month.

January's report offers hope that employers may start adding jobs soon. Excluding the beleaguered construction industry, the private sector as a whole added 63,000 positions.

[GannonFan]

It's certainly odd since the big news yesterday was that the number of people applying for first time unemployment benefits grew so much, and that people using the federally expanded unemployment compensation (something like over 26 weeks) jumped as well. And of course, the fact that we can shed 20k net jobs in one month and have the unemployment number improve by such a big just (0.3% is a pretty large move on a month to month basis). It just makes people not trust the numbers as much anymore. Of course, if the number self corrects itself and we're well over 10% next month then that will feed into the negative feeling about the economy. It would be nice to actually be able to trust numbers, but that just doesn't seem possible these days.

[green&gold75]

It's certainly odd since the big news yesterday was that the number of people applying for first time unemployment benefits grew so much, and that people using the federally expanded unemployment compensation (something like over 26 weeks) jumped as well. And of course, the fact that we can shed 20k net jobs in one month and have the unemployment number improve by such a big just (0.3% is a pretty large move on a month to month basis). It just makes people not trust the numbers as much anymore. Of course, if the number self corrects itself and we're well over 10% next month then that will feed into the negative feeling about the economy. It would be nice to actually be able to trust numbers, but that just doesn't seem possible these days.

Numbers that people trust: If you've got a job, your personal unemployment is 0%. If you don't have a job, it's 100%. No Govt agency data manipulation there. Agree it's odd, though. Makes you wonder if they are redefining the denominator.

[blueballs]

To be "unemployed" in the manner the Labor Dept uses to arrive at their statistics one must be out of a Job but be actively pursuing a new job. If you're not looking you're considered to have given up hope and not counted.

These numbers are revised so many times they really aren't relevent except for the fact it is often a market mover for both stocks and bonds and a source of consternation for politicians and the media.

[kalm]

To be "unemployed" in the manner the Labor Dept uses to arrive at their statistics one must be out of a Job but be actively pursuing a new job. If you're not looking you're considered to have given up hope and not counted.

These numbers are revised so many times they really aren't relevent except for the fact it is often a market mover for both stocks and bonds and a source of consternation for politicians and the media.

And wouldn't the only way to measure those pursuing a job be the job search requirements to receive unemployment, or other employment security related activities like re-training, education, employment classes etc.?

[SuperHornet]

Any word on the possibility that Obama's cooking the books here?

[travelinman67]

To be "unemployed" in the manner the Labor Dept uses to arrive at their statistics one must be out of a Job but be actively pursuing a new job. If you're not looking you're considered to have given up hope and not counted.

These numbers are revised so many times they really aren't relevent except for the fact it is often a market mover for both stocks and bonds and a source of consternation for politicians and the media.

Absolutely.

I've seen CA factor out (in addition to "seasonal" farming and construction, "seasonal" retail) mgmt (salaried), and layed-off who are participating in retraining programs. Like you say, the govt. numbers really aren't relevant. As a thumbnail, I usually add 5 to 8 pct. to get an "accurate" figure.
Indicators like housing starts and sale, GDP (remember that?) and dollar value are (imho) more valuable indicae.