Why The Unemployment Rate Fell For 'All The Wrong Reasons'

After a month of positive signs indicating a strengthening American economy, the news from Friday's Bureau of Labor statistics report paints a disappointing -- and confusing -- picture.

Although the unemployment rate fell to from 9.4 to 9 percent in January, a scant 36,000 jobs were added to payrolls. The word many economists are using Friday morning to describe this discrepancy is simply "confounding."

"We don't believe the extent of the drop in the unemployment rate," said Stuart Hoffman, an economist at PNC. "It's like funhouse mirror image, although I don't know if there's anything funny about it. The unemployment rate appears to be falling much stronger than it actually is, while payroll job growth is probably stronger than it actually is -- but certainly not strong enough to suggest that drop in the unemployment rate."

The Bureau of Labor Statistics' monthly report is composed from two different sources: the household employment survey, which is measured by contacting American workers, and payroll employment as reported by employers. The confusion surrounding this jobs report boils down to this: although there are now only 13.9 million officially unemployed Americans -- down from 14.5 last December -- that drop was not matched by an increase in hiring.

"It's like the unemployment rate is falling for all the wrong reasons," Hoffman said. "Who the hell can make sense of this report? It's distorted. It's definitely distorted."

One reason for January's sharp drop in unemployment is that more workers than ever have grown so discouraged that they have simply stopped looking for work. If an unemployed American stops searching for work, they are no longer counted as officially unemployed. Indeed, the pool of workers who have given up the hunt has reached a stunning new low for this recession: nearly 5 million have dropped out of the labor force completely.

(Click here for our full report on the case of the missing workers.)

Some of the lack of payroll jobs growth may be due to miserable January weather. "Given the confounding nature of this report, we will have to wait at least another month to see if the labor market is rebounding strongly," economist Heidi Shierholz writes, in a report today. She continues, zeroing in on a sharp fact:

Aside from today's muddled picture, one thing is crystal clear: the U.S. labor market started 2011 with half a million fewer jobs than it had eleven years ago, in January 2000, though the labor force has grown by nearly 11 million workers since then. Today's numbers are a testament to both the enormity of the current labor market crisis plus the very weak job growth of the 2000-2007 business cycle.

Comments

[ccarlos]

06:49 AM on 02/12/2011

Add to the official 9.4%-9.7% unemployment figure another 4.0%-5.0% of Americans who have given up looking for work, another 4.0%-5.0% engaged in some shady or parasitical business, and another 5.0%-8.0% who ordinarily would be looking for work but have opted instead, hoping to make themselves more marketable, to attend college fulltime, and the actual unemployment figure is closer to 25.0%-30.0%, about the same as in Greece, Spain and other economic basket-case countries.
Americans are a law-abiding but not a docile people. They are fast losing patience. If their employment situation doesn't improve soon, many are likely to lash out hard, in some cases violently, at the powers-that-be they deem responsible for the problem. An anti-Murabak-like revolt? Could very well happen to some degree in the more depressed parts of the country. (It might already be happening)

[Trepasky]

04:30 PM on 02/06/2011

If you want to understand how the numbers are calculated and a probable explanation for the 'discrepancy' read the BLS reports.

There is opportunity in any survey for a margin of error. Because it is not possible to interview every American monthly, we have to use statistical methods instead.

To suggest that the numbers are somehow fudged is no different than saying global climate change is because of fudged numbers. The mathematics and science are sound and useful tools that can provide insight into otherwise difficult or even impenetrable areas because of the sheer numbers involved. 300Million people and 140Million workers can not be individually surveyed each month.

http://www­.bls.gov/n­ews.releas­e/empsit.n­r0.htm
http://www­.bls.gov/n­ews.releas­e/empsit.t­17.htm
http://www­.bls.gov/n­ews.releas­e/empsit.t­15.htm

[MG Metiva]

08:43 AM on 02/08/2011

It could jump to 9.6% next month all because last month they called more employed people than normal.

[KWiedemer]

08:56 PM on 02/10/2011

The statistical methods used to calculate unemployment rates might be sound, but that has nothing to do with the fact that 5 million people have dropped out of the labor force -a fact that is largely omitted in reports describing the monthly employment/unemployment conditions. That, is an of itself, is miseleading.

How about all of the 5 million that have dropped out of the labor force and most of whom probably no longer have a landline or in many cases a cell phone? Are these people included in the sample using in completion of the monthly household survey?

Denver Unemployment Examiner

[Raymond Medeiros Jr]

11:08 PM on 02/05/2011

"Businessmen that take seriously their responsibilities for providing employment, eliminating discrimination, avoiding pollution . . . are preaching pure and unadulterated socialism."
-Milton Friedman, 1970

Milton Friedman, Nobel prize-winning economist wrote those fierce words back in 1970 in his article "The Social Responsibility of Business Is to Increase its Profits."

Read my entire article here
http://raymedeiros2010.blogspot.com/2011/02/new-business-model-for-stonger-america.html

[thejokerbrokers]

01:58 PM on 02/05/2011

You could say some are not in the right mindset.

[kemcha]

10:56 AM on 02/05/2011

When the Federal Government, the Democrat-controlled Federal Government, is controlling how the unemployment rate is reported ... it's no wonder that they report that the unemployment rate fell despite only 36,000 jobs being created.

This is why we need an independent agency, a civilian watchdog group, to administrate the U.S. Bureau of Labor. This is nothing more than the foxes guarding the hen house or a bank robber who works for bank security.

The White House cherry picked the best numbers in the unemployment report and chose to run with those. This time around? The Obama Administration got caught cheating on these numbers since no reasonably, intelligent person can look at this newest report and believe that 36,000 jobs caused that rate to drop significantly. It just proves that the White House is fudging the numbers and not reporting the actual numbers.

If President Obama can fudge the unemployment numbers to make it look like the unemployment is improving, he will. With the 2012 elections around the corner and the Democrats and President Obama worried that they stand a very good chance of losing the 2012 elections, he's going to try every trick in the book to sprinkle sugar on those numbers.

Because of his inability to address unemployment compensation to the 99ers, who are desperately in need of a Tier 5 of unemployment benefits, I don't plan on voting for any Democrat in 2012, just like I did in the November elections.

[TEM325]

01:02 PM on 02/05/2011

Just like the Republican-controlled government convinced that the invasion of Iraq was to avenge 9/11 and there were weapons of mass destruction. Your suspicions that the current Admin has fudged unemployment numbers is just that--a suspicion. The Bush admin fabricated evidence of weapons of mass destruction. That is a big difference.

[kemcha]

07:46 PM on 02/05/2011

It's not hard to realize, from the report they released, that the Federal government is fudging the numbers. Now, everyone knows that the White House is lying about the unemployment rate.

Fact: The creation of "ONLY" 36,000 jobs would not cause a drop in the unemployment rate. Economists have all came out and stated that it takes an excess of 250,000 jobs being created by big business/retailers to cause the unemployment rate to decrease because of the new generation of high school students and college students entering the workforce.

Did Obama actually believe that everyone would take his word that only the creation of 36,000 jobs caused the unemployment rate to drop and the fact that many economists are shaking their head to the conflicting data that the White House has released?

It doesn't take a genius to realize that somebody within the Obama Administration went over the data and pulled the best numbers out of the BOL report. With the 2012 elections coming up and the President's re-election campaign getting ready to start in March, it also doesn't take a genius to realize that the Obama camp is trying to sugar-coat every report coming out of the White House.

[Joseph Joyal]

10:26 AM on 02/05/2011

Like all government stats its all smoke and mirrors, I've been saying this for years!!!

[bd7769]

08:02 AM on 02/07/2011

I once heard that 50% of all statistics were fabricated to suit the argument they were created to support. Of the remaining 50%, 2/3 of them were based upon sampling techniques that were statistically flawed and were not correct. Of the remaining 1/3, half this population neglected to provide the underlying data they used for determining the statistical calculation. And of the remaining half, the data collection and analysis took so long to complete that the results were simply put worthless.

[mikkim]

04:19 AM on 02/05/2011

another major problem is that the emloyers' survey does not count the "self employed"as reported yesterday by the BBC. I read on Bloomber 5 days ago that January witnessed the highest numeber of newly self employed (154,000) since 1954. When you ask employers "have you hired ?" you are missing an important piece od information.

[mikkim]

04:14 AM on 02/05/2011

It would be wise to wait until the end of the month when the revised figures are out. In this case one of the 2 surveys (the household one) was performed during the storm week and counted 800000 snowtrapped. it is at this stage impossible to determine how many of these are employed, unemployed, newly emlpoyed, newly unemplyoed. What happend amounts to conducting the survey on Thanksgivings day. So saying that the people pulling out of the active population has increased (other figures released a week earlier seem to contradict this) is pure speculation as is guessing anything else. I would prefer that these figures 1 month later and not on the first friday after month end. That's what all other industrial countries do allowing time for double check, multiple surveys, correction of background noise, purging of anomalous circumsances. The way these statistics are performed is techncally sound, what troubles me is the timing since this data, once released, detrminates a mountain of punditry and interpretation which heavily affects peoples' attitudes and behaviour.

[Alwayspissedoffatsomeone]

12:06 AM on 02/05/2011

"confounding"?

When so many have fallen off the map of even looking for work, it's easy to adjust the overall workforce to show a drop in unemployment. When you stop counting them in the equation, the rosier the picture gets.

[gomezrules]

10:52 PM on 02/04/2011

I haven't heard any outrage over these numbers from the usual Dem Party abetting media. Could one imagine the vitriol being spewed if the Bush admin had claimed that unemployment fell by such a significant rate based on such paltry job creating numbers?

Geezz...

[Arts4u]

12:45 AM on 02/05/2011

Current media attention is on Egypt it seems... this topic will come up, as it should. The country has been miscounting the unemployment #'s for years and in the 2000's it began to become very clear that it was a flawed system.

Please, let's not make this a pissing contest along party lines....

[Akhil Khanna]

10:24 PM on 02/04/2011

The jobs could have been saved if :-

The government had let the big banks fail.
OR
Pressed criminal charges on the people in top management positions of those banks for fraud and changed the management of those banks before offering it a bailout.

Immediatel­y Reinstated the Glass Stegall Act.

Government could have used the bailout money to fund infrastruc­ture projects around the country which would have created jobs immediatel­y. Instead they chose to hand free money over to their buddies (same people who caused the crises because of speculatio­n and leverage) for speculatio­n in stock and commoditie­s markets.

Taken quicker steps to reduce housing loan principle in order to make it easier for the majority of the population to pay their monthly installmen­ts while staying in their homes thus avoiding foreclosur­e.

But of course we can keep on dreaming.
http://www.marketoracle.co.uk/Article24581.html

[Arts4u]

08:44 PM on 02/04/2011

Could it be that the way we count unemployment #'s is inadequate and has been so for years? Time for an honest count... include those that have been pushed out of the labor pool due to being considered 'over qualified", aka too expensive, too experienced. Add those that were forced to retire early, add those that have been reduced to working one part-time job because they have not been able to find anything else, add those recent graduates who have been 'interning' (unpaid) as they try to get their foot in the door. Want to guess a real percentage?

[verycold]

09:55 PM on 02/04/2011

We were told the past couple months, that when the economy looked like it was turning around, the millions of people NOT searching for a job since none were available, would then re-enter the job market and thus be counted.  So apparently that expert guess was way off the mark. 

That household study they do with thousands of households each month, will count a person working if they only work a couple hrs weekly.  That makes no sense.  I agree with you that we need a much more comprehensive analysis of this data.  So how many people did find a full-time job only at 25 percent less salary?  We need to know the real breakdown.  It isn't doing our country any good to hide behind the real numbers.  We can't fix things until we admit what is really happening.

[Arts4u]

12:40 AM on 02/05/2011

Agreed. Perhaps a first step, which ideally should be done immediately, is to halt any and all outsourcing and HB1 Visas to stop the bleeding. This, of course, is wishful thinking, when we have a government which seems to have an incomplete view of the bigger picture, as well as, perhaps - the complete lack of desire to correct the situation.

[Trepasky]

04:09 PM on 02/06/2011

Agreed and the BLS does publish in depth analysis of their survey data.
Because Americans can't seem to think and have a 10 second attention span, the published numbers are the 'quickies'

If you have the time and interest, the reports are quite informative!
http://www.bls.gov/news.release/empsit.t15.htm
http://www.bls.gov/news.release/empsit.t17.htm
http://www.bls.gov/news.release/empsit.nr0.htm

[democrats for life]

08:07 PM on 02/04/2011

does everyone have enough money to live until 2021, when unemployment falls to 5 percent. many of the bottom 25 percent will not make it, just what the republicans want

[jdevans]

07:16 PM on 02/04/2011

Einstein said insanity is "doing the same thing over and over again and expecting different results". Sending out hundreds of resumes and expecting to get a job when you can't even get an interview is insane. No wonder 5,000,000 people have given up looking for work.

[Arts4u]

12:46 AM on 02/05/2011

They haven't given up... they just don't appear in the system anymore.....

[MyResponsibility]

11:27 AM on 02/05/2011

Why would anybody every give up?  I've got a family, giving up is not an option.  I've been unemployed since 9/14/10, and I've had to join the self-employed group to stay afloat while I find employment.  I've not put out hundreds of resumes, I've put out only 18, each one targeted specifically to the job posting.  I have my final interview (of 5 total for this company).  The only reason why I got noticed is because I tracked the owner down on Linkedin, connected with him, sent him a personal note, and called his office twice daily until he took my call.  I was going to call him until he either talked with me or got a restraining order against me.  One has to become more resourceful, not more reclusive.

[traceymarie]

05:35 PM on 02/06/2011

F&F either talked to me or got a restraining order.....good job

[Arts4u]

06:08 PM on 02/06/2011

You are lucky that he took your call. Many employers would have blown your calls off. Good luck with the final interview.

I'm not sure where the term 'given up' is coming from and how that is measured or determined..... I think it's a term applied to those who have exhausted their UI.

[Scott Connery]

06:49 PM on 02/04/2011

The only reason it fell is because the government plays with the numbers until they get the result they want

http://www.rationalpublicradio.com/unemployment-rate-drops-to-9-or-does-it.html