Friday, March 7, 2014

Why did the unemployment rate INCREASE in February when more jobs were created than expected? You know what they say about Statistics. See here the what for's...

Lately the pace of job creating has been tepid, to say the least, BUT the unemployment rate has been going DOWN.  How does that happen?

This month (Feb 2014) the number of jobs created has been far better than in past months BUT the unemployment went UP.  How does that happen?

Mostly has to do with the movement of people in and out of the labor force.

I pluck the following data from the latest Household Survey on Employment (Feb 2014).  I highlighted the "Civilian Labor Force" in yellow.  This shows the number of people employed and unemployed added together.

I highlighted in brownish the numbers for the past two months and for one year ago (Feb 2013).  Notice the Civilian Labor Force DECREASED on net last year.  From January 2013 to December 2013 there was a net DECLINE in the Labor Force of 51,000.  This will tend to LOWER the unemployment rate as people exit the labor force for various reasons (retirement, giving up looking for work).

So, a decrease in the unemployment rate in the short run can be a bad sign.

However, in February there was a BIG bump UP in the Labor Force by 264,000.  This will tend to INCREASE the unemployment rate as more people jump back in (or enter for the first time) to the Labor Force.

This can be a GOOD thing!  If people are more confident about job prospects then initially more people who were not looking for jobs are not looking.

So, an increase in the unemployment rate in the short run can be a positive sign.

Don't you just love economics and statistics?

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