The Bad News in the Good News (Updated)

Don’t be too encouraged by the slight drop in the unemployment rate announced today:

The American economy lost 247,000 jobs in July, and in a reversal, the unemployment rate fell slightly, to 9.4 percent, the government reported Friday.

Although businesses are expected to keep cutting jobs through the rest of the year, the Labor Department’s latest figures offered some faint signs that the sinking job market was approaching bottom.

The Bureau of Labor Statistics’s report is here.

When payrolls continue to decline and the unemployment rate declines, too, I would interpret that as workers becoming discouraged or otherwise leaving the workforce. The good news won’t be a great deal more than spin until the workforce starts increasing and I can’t see that happening for a long, long time.


I see that Daniel Indiviglio interprets the numbers in much the same way that I do:

As a recession drags on for this long, and people are unable to find jobs, they begin leaving the workforce. They become discouraged regarding job prospects. BLS offers an unemployment rate that includes these discouraged workers. In June 2009, that was 10.1%. For July, it was 10.2%.

Given this change in unemployment including discouraged workers, I think it’s pretty clear that the 0.1% decrease in the reported unemployment rate can be misleading. In reality, those who would like a job but don’t have one increased by 0.1% up to 10.2%.

9 comments… add one
  • TimH Link

    It depends on what you mean by ‘good news’ — positive economic growth is positive growth; when that returns, we’ll have good news. And a permanent shrinkage in the workforce is bad for the economy, but some discouraged workers are going to school — which will probably have long-run positive benefits; some may become stay-at-home moms or dads, which may be correlated to better achievements for their children, and some may just be deciding to retire early, especially workers whose savings weren’t totally devastated (for example, those eligible for a monthly fixed-rate pension).

  • Sam Link

    Or starting their own businesses.

  • That’s possible, Sam. If you’ve got evidence of it, I’d certainly like to see it.

    It’s something that’s pretty hard to get a handle on but I’ve seen no evidence of a large increase in new businesses over the last year or so. In particular, some single-person corporations pay a salary, those are included in the employment statistics, and employment continues to go down.

  • PD Shaw Link

    The self-employment figures are down 146,000 from June:

    10,621,000 (7/08);
    10,079,000 (6/09);
    9,933,000 (7/09)

    (I’ve added the ag and non-ag figures together)

  • Unless you believe that everybody is now working off the books, that wouldn’t seem to support the idea that on net lots of people are starting their own businesses.

  • PD Shaw Link

    Frankly, I don’t know how reliable self-employed figures can be absent reliance on the quarterly estimated taxes.

    One interesting thing about the self-employment figures is that jobs are up 32,000 in the agriculture sector from July 2008. I wonder if there is an immigration angle there.

  • Sam Link

    Not really “off the books” – it is common to not pay your quarterly estimated tax in your first year since there is a grace period of 1 year for government tax penalties while you are finding out what your actual income is. Also the existence of a sole proprietorship in your own name isn’t necessarily reported until tax time. That’s what happened at our household in 2003 anyway. I have no evidence, I’m hoping you’ll dig into it further after I plant the seed 🙂

  • Uhhhm careful. You are comparing data from the Household Data vs. the Payroll Data. They aren’t the same thing.

    The number of people unemployed fell by a bit over 1.8%.
    The number of peope in the labor force fell by a bit over 0.27%

    Thus, it isn’t that people are leaving the labor force when using the Household survey.

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