When A Rising 'Unemployment Rate' Would Be 'Great News!'

We have been so conditioned to think about the 'unemployment rate' as being the sole indicator of strength in the labor market that using it as the only beacon sometimes might lead us off course.

We have long been writing about the inherent fallacies of the 'official' unemployment rate put out by the Bureau of Labor Statistics each month which are: A) The formula has changed so much over the years as to make comparisons with past data like comparing apples to oranges and B) It can be used to mask what is really going on in the economy for purely political purposes.

Imagine that. Politicians and spinmeisters using government data for purely political purposes.

First of all, here is the official BLS data put out today.

No one in the press or on the mainstream or cable news is going to read it out loud to you verbatim, since they have their own individual agendas to pursue and political axe to grind so let us give you the 'highlights' without the hype and the fanfare and trumpets sounding or worry beads rolling in their hands:

• The unemployment rate, at 4.4 percent, and the number of unemployed persons, at 7.0 million, were little changed. (although the rate did inch up from 4.3% to 4.4% since May)

• Total non-farm payroll employment increased by 222,000 (yea!) in June, and the unemployment rate was little changed (how come?) at 4.4%
• The number of long-term unemployed (those jobless for 27 weeks or more) was unchanged (boo!) at 1.7 million in June and accounted for 24.3 percent of the unemployed.
• Over the year, the number of long term unemployed was down by 322,000 (yay!)
• The labor force participation rate, at 62.8% changed little (boo!) in June and has shown no clear trend over the past year. The employment-population ratio (60.1%) was also little changed in June and has held fairly steady thus far this year.
• In June, 1.6 million persons were marginally attached to the labor force, down by 197,000 from a year earlier. (yay!) (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey (yay!) 

Sort of boring if you don't really dig into the numbers a little bit more deeply.

There ya have it! One side will say 'this is all great! and the other will say 'this is all terrible!'

However, we see the latest data as 'moving in the right direction' for the following reasons:

1. Even though the unemployment rate did not change much, it did change some going from 4.3% to 4.4%.
   
   If that trend holds for most of the rest of 2017, and the 'official' unemployment rate keeps inching up each month ever so slightly, then that means more and more people are feeling more confident about their job prospects and future and will enter or re-enter the labor force and look for a job.
   
   They are NOT counted as being in the work force unless and until they are actively interviewing and looking for employment. Technically, more people 'actively' looking for work expands the total official 'labor force' so if they can't find a job immediately, the unemployment rate goes up to account for this new influx of people.
   
   Consider a situation where 5 million people are unemployed out of a work force of 100 million people. The unemployment rate would then be 5%, 5 divided by 100=5.
   
   If 1 million new active job applicants show up to look for work tomorrow, however, 6 million people will be technically 'unemployed' until they can find a job. The 'official' labor force would then be 101 million Americans either in the work force or 'actively looking' (key operative words) for work.
   
   The new, hopefully temporary 'official' unemployment rate would then be 5.94% tomorrow, up dramatically from just 5% today. 6 million people looking for work divided by 101 million people in the active labor force, 6/101 or 5.94%.
   
   See how tricky the unemployment data game is? No wonder people can play games with the data politically, yes?
   
   However, no one would dispute that having this hopefully temporary, higher unemployment rate would be a great thing for the economy since it meant a million new people were optimistic about finding a job now and they were taking active steps to find a job.
   
   That would be 'great news' in anyone's book, right?
2. The absolute number of people who are employed now in full-time jobs is 2,078,000 more than one year ago in June 2016. 153,168 million people.
   
   153,168 million people working today > 151,090 million people working in June 2016 which is a good thing by anyone's standards.
3. The employment-to-population ratio is now 60.1, up from 59.6 in June 2016, a 0.5 difference.
   
   That might not sound like a lot until you consider that the employment-to-population ratio has not been over 60 since (drum roll) April of 2009 when we were flying right into the maw of the economic hurricane now known as the Great Recession.
   
   
   
   Some people tried to explain this all away by the aging of the massive Boomer population as they retired as if all of them were leaving the workforce at the same time due to some common innate biological signal like turtles returning to nest in the same place or salmon dying after spawning.
   
   We can only find evidence that supports about 30% of this exodus from the workforce as being attributable to planned retirements by Boomers.
   
   The other 70% of the people leaving the workforce had more to do with the severe economic contraction; the wiping out of savings; the plummeting of home and land values and the crash of the stock market so that many just retired on some form of combination of a pension, a smaller version of IRA or some sort of government assistance through disability or Social Security.
   
   The mere sign of the employment-to-population ratio poking its head above 60 has got to be as encouraging of a sign as crocuses poke their heads through the melting snow after a harsh and terrible winter.
4. In a similar manner, the participation rate at 62.8%, even though the BLS calls it 'little changed', is good news as well since it is going up, not down as it has done so essentially for the past 17 years.
   
   It is too early to see if this is a sustainable upwards trend but if it is, it is very good news because it means more people, from Millennials to aging Boomers are actually 'confident' enough about the direction of the economy and the job market to actively go out and interview and try to find a job whereas for much of the past 8 years for sure, they have chosen to do the opposite.
   
   But we do know this, just because of sheer human nature: People don't look for work unless they think they can actually find some gainful employment and that confidence level in the American economy has been rising ever since the elections last November, 2016.

So. There you have it. The unvarnished truth about today's employment data. You can spin it however you want.

Just make sure you have the facts first and share them with your friends, families, colleagues and your political adversaries.

They will be glad you did.

**definition of terms from BLS:

• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.
• The national unemployment rate. Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force.
• The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work.
• The employment-population ratio. This measure is the number of employed as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is currently working.

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