Friday, January 7, 2011

What Does The New (Reduced) Unemployment Rate Really Mean? Why the Numbers Don't Add Up

Interesting question.  Let's see, 103,000 new jobs were created in December (25,000 or so for waiters and waitresses, and 55,000 or so in health care), and the Bureau of Labor Statistics said that the number of unemployed people dropped by 556,000 (to 14.5 million). Obviously, simple math tells us that 433,000 people who are no longer "unemployed" are not being accounted for as being "re-employed."  Just as plainly, 443,000 people who were previously counted as unemployed in November did not die, move out of the country or start their own business.

My guess is that a lot of people who are now counted as "not unemployed" in fact are people whose unemployment benefits have simply expired.  If so, today's ebullient reports of the steep drop in unemployment rates during December may be mere eyewash.  The fact that Wall Street did not react to the positive unemployment news today with a concommitant market jump suggests that our optimism should be guarded, at best. 

So, the drop in the unemployment rate from 9.8% to 9.4% (the biggest single month drop since 1998) is obviously a real good thing but, as we discussed before, there are still an awful lot of people who want to work full-time who are out of work....

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