Thursday, March 11, 2010

The umemplyoment rate is INCREASING----That is GOOD NEWS(???)!!!!

From Washington Post (by way of HERE): "Rise in Washington area unemployment seen as good sign for economy's recovery"
Unemployment rates rose in the District, Maryland and Virginia in January, a shift that economists said could be a positive sign for the economy because it suggests that discouraged job-seekers are feeling more optimistic about their prospects and have resumed looking for work.
This is a peculiar and often confusing signal to the unintiatated in the subtleties of economics.  If you are unemployed for  6 months and 1 day the Bureau of Labor Statistics stops counting  you in the official, published unemployment statistic (BLS considers you a "discouraged worker").  Fair or unfair, this is the methodology they use.  "Discouraged workers" have given up looking of work because they believe there are no jobs available for them (or others).  When the incidence of discouraged workers increases it makes the unemployment rate seem BETTER than it really is (the labor force in now smaller).  When the economy starts to recover and these workers see help wanted signs appearing and increased hiring, then they re-enter the job searching market.  Once they have signaled their intent to look for work again the BLS counts them again in the ranks of the unemployed actively looking for work.  This INCREASES the unemployment rate even though the economy is recovering.  When these workers are absorbed into the labor force then the actual unemployment rate will start to decrease to relfect actual economic conditions.  So, dont be surprised if you hear mixed signals  coming from the media, such as "GDP is on the increase and so is hiring BUT the unemployment rate is increasing---what is up with that?"---now you know why!! Isn't it nice to be informed?? :)
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