Friday, August 5, 2011

Behind This Morning's Unemployment Number

Later on today, the President will have another one of his speeches/pressers to talk about this morning's unemployment report. Expect him to tout his job creation record but don't be fooled by his spin.

According to the headline numbers, the workforce added 116,000 new jobs and the unemployment rate fell from 9.2% to 9.1%.

However, you should understand that our workforce grows -- based on normal population growth -- by 1.3% annually. This means that we add about 2 million new workers to the labor force each year. Therefore, on a monthly basis, we need to add at least 166,000 jobs in order to keep up with that growth. By only adding 116,000 jobs, we actually fell short of our growing workforce by 50,000 jobs; making the "true" number a "negative" number for the month.

On top of that, the only reason that the unemployment rate fell to 9.1% is because 193,000 unemployed (discouraged) workers, who were "not" actively looking for a job, were completely "dropped" from the total labor market. By decreasing the size of the workforce and, at the same time, adding a few jobs, the unemployment rate is being artificially distorted.

Actually, if you add the miss on the job market growth to the amount of discouraged workers who were being dropped from the workforce, we really had a loss of 243,000 jobs in the month and not some bogus growth number of 116,000. At the very least, the unemployment rate should have remained the same.

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