Marketplace Scratch Pad

Misreading the job numbers

Scott Jagow Feb 5, 2010

The consensus over January’s employment report seems to be “cautious optimism.” It’s “a cause for hope, but not celebration” is how the president put it. That’s an understatement. The unemployment rate fell below 10%, but it would have been better news if the unemployment rate had risen.

Here’s the report from the Bureau of Labor Statistics and here’s President Obama’s response.

House Speaker Nancy Pelosi seized on the unemployment rate dropping from 10% to 9.7%:

Today’s jobs report marks a welcome step in the right direction for our economy and our families: the unemployment rate is going down.

Pelosi is getting ahead of herself. What’s she going to say when the unemployment rate goes back up? It most likely will, and that’ll actually be the time to start feeling more encouraged. The people who’ve given up looking for work aren’t being counted in the labor force. When they are counted again, they’ll add to the ranks of the unemployed, but their reentry into the job search means they believe there are prospects. Our Economics Correspondent Chris Farrell explains using the example of someone interviewed for the employment survey:

Mrs. Jenkins tells the interviewer that her daughter, Katherine Marie, was thinking about looking for work in the prior four weeks but knows of no specific efforts she has made. Katherine Marie does not meet the activity test for unemployment and is, therefore, counted as not in the labor force.

When the Katherines of society decide it’s worth looking for work, the unemployment rate will go up. They’ll be officially labeled as unemployed, largely reflecting greater optimism about jobs and the economy. The unemployment rate will start declining again if their job-hunting optimism proves right.

That being said, there is some reason for optimism in January’s report. Sung Won Sohn of the Smith School of Business and Economics puts it this way:

Aside from the battered construction and state-and-local government, employment is on an uptrend. Even in manufacturing, jobs increased for the first time since the recession began… There are other telltale signs pointing to the improvement in the labor market. The workweek, hourly earnings and the hiring of temporary help have risen. These are good omens for the job market. Employers want to be cautious about hiring and test waters before taking on full-time employees.

The net loss of jobs was 20,000 in January. That’s an enormous improvement from last January when nearly 800,000 people lost their jobs. But 8.4 million Americans have been put out of work total, and we’re still not cutting into that number.

The next few months will indicate whether the jobless recovery starts giving way to a jobs recovery. If hours continue to increase, some of the temporary jobs turn into permanent ones and yes, if the unemployment rate ticks back up for a bit, then it means people besides the president and the House speaker see cause for hope.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.