The Goofy Unemployment Rate Increase
The unemployment rate took a big jump - from 5.7% to 6.1% - last month.
There is no way to sugar coat that - it's lousy.
Having said that, it is also a bit odd. There are two reasons.
First, there is the discrepancy in employment figures between the household and establishment reports. The former comes from calling up homes and asking if people have a job. The latter comes from asking employers who write the checks the same thing.
Employers said that they didn't let many people go this month: 84,000. Households are saying something different: 324,000. The difference of 240,000 is people who have been working on their own.
It's not good that these people are no longer working. But, we need to keep in mind that this discrepancy has been a big criticism of the Bush recovery all along - that lots of folks were working outside of the establishments (and maybe not really working much at all). Bush critics said we shouldn't count those people as employed. If that's the case, we can't realistically claim with a straight face that the big jump in the unemployment rate comes from them - instead we should be saying that they've finally seen the light, and the unemployment rate last month was actually higher than the announced rate of 5.7%.
Second, there are the people who aren't in the labor force. Or rather, where have they gone? Just due to normal population growth, the number of people not in the labor force (students, retirees, and so on) should go up most months - perhaps by 80K or so. Instead the number fell this month by 8K. That continues a pattern - the number of people not in the labor force is down 82,000 from a year ago.
It's time for some comparisons. Over the past year, the labor force is up 1.3%, while the population not in the labor force is down 0.1%. Typically, those growth rates should match up. Instead, this pattern suggests a shift. Households that had some people consuming leisure are shifting those folks back into the working world.
If you put these together, this is what we have. Businesses are hunkered down, but not shedding many workers. But, all those consultants and home workers out there are having trouble finding work. Because they can't make ends meet, other members of their households are also out looking for work.
Either way, it's not good, but it does mean that we shouldn't fret too much about the size of the jump. If you think those people were forced to work outside of establishments, and their spouses were discouraged from entering the labor force, then this is a bigger problem.
For my part, I'm sorry to rain on your parade, but a lot of those people were pursuing nonsense like house flipping, and some of them did pretty well at it for a few years. They're done now.
