What Do Unemployment Figures Mean?

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What Do Unemployment Figures Mean?
By Frank Ahrens
Washington Post Staff Writer
Saturday, August 8, 2009

The official national unemployment rate dropped to 9.4 percent in July from 9.5 percent in June, the Labor Department reported Friday, even though the economy lost 247,000 jobs.

Q: How can the unemployment rate drop while the economy still loses jobs?

A: The two indicators come from different surveys. The unemployment number is based on a survey of households -- in which the government asks people whether they have a job or want one. The jobs survey asks employers how many workers are on their payrolls. In July, the household survey showed that the labor force declined by 422,000.

Gary Steinberg, spokesman for the Labor Department's Bureau of Labor Statistics, explained: "If the labor force is 100 people and 10 are unemployed, the unemployment rate is 10 percent. If the following month the labor force is 95 and the number of people unemployed is nine, the unemployment rate is 9.5 percent."


Q: So why is the labor force shrinking? Isn't the U.S. population still growing?

A: Yes. And this gets to the heart of the way the Labor Department counts unemployment, which is not without controversy. The monthly count is based on a rotating survey of 60,000 homes, which statistically represents the U.S. labor force of 154 million. That is not the controversial part; that is standard and accepted statistical method.

The controversy is this: In the survey, the Labor Department only counts you as unemployed if you meet a number of tests, including whether you actively looked for work in the four previous weeks. If you did not -- and even if you do not have a job -- the Labor Department counts you "marginally attached" to the labor force and not part of the official monthly computation.

The Labor Department does, however, take note of you and includes you in another monthly unemployment number -- which some believe paints a more accurate picture of the economy -- that includes everyone who should have a full-time job but does not. These include the "discouraged," who have given up looking for work and those working part time who would rather be working full time. For July, this number was 16.3 percent, down from a recent-history high of 16.5 percent in June.

Q: How high will unemployment rise?

A: Everyone has a guess. Earlier this year, the White House predicted unemployment would top out at 8 percent. But earlier this summer, President Obama said unemployment would top 10 percent before going down. That's in line with what mainstream economists are saying.


Q: Does Friday's unemployment number mean that the recession is over?

A: We will not know for a while. Many economists believe it might be but more data are needed to be sure. In the first quarter, gross domestic product shrank at a rate of 6.4 percent. In the second quarter, the economy shrank only 1 percent. So it is going the right way. But in the seven U.S. recessions since 1970, unemployment continued to rise for months after the recessions ended. For instance, unemployment kept rising for well over a year after the 1991 recession ended.

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snowball2009

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