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Why A Higher Unemployment Rate Is Actually Good News This Time

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The job market is still not the greatest, but we just got one hopeful sign that it might be improving a bit.

The economy added 209,000 jobs in July, and the unemployment rate ticked up to 6.2 percent from 6.1 percent, the Bureau of Labor Statistics said Friday. Believe it or not, both of those numbers are encouraging.

The reason the first number is encouraging is because, duh, jobs. The encouraging part of the second number, the unemployment rate, is less obvious. Normally, higher unemployment is bad news, and people seeing HIGHER UNEMPLOYMENT on the evening news tonight will naturally assume the worst. But this time, unemployment actually rose for a good reason.

unemployment

Source: BLS data

Here's why: Technically speaking, unemployment is the percentage of people in the "labor force" who don't have a job. To be counted in the labor force, you have to be looking for a job. One reason unemployment has fallen so quickly in recent years, from a peak of 10 percent back in 2009, is that a lot of people stopped looking for work. They took themselves out of the labor force. Once they stopped looking for work, they stopped being counted as "unemployed." Voila, the unemployment rate goes down.

But in July, 329,000 people jumped into the labor force, and that's the main reason the unemployment rate ticked higher. This is a hopeful sign: It could mean that people are hearing there are more jobs, and so they're starting to look again. They're just not finding those jobs right away, or at least not enough jobs for all 329,000 people. That's why unemployment rose, as it sometimes does at times like this.

Here is a caveat salad: These labor-force numbers jump around a lot. We could easily see 500,000 people leave the labor force in August. A steadier number, the percentage of the working-age population in the labor force, is still dismally low. It ticked up a tiny bit in July. But at 62.9 percent, the labor-force participation rate is still near the lowest level since the 1970s:

labor pool

Source: BLS data

More importantly, wages are still dead in the water -- average hourly earnings for all employees are up just 2 percent in the past year, basically keeping pace with inflation. We're still far from a fully healthy job market.

Around the Web

Unemployment Rate - Bureau of Labor Statistics Data

Unemployment Rates for States - Bureau of Labor Statistics

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Unemployment - Wikipedia, the free encyclopedia

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