There is no irony in data. Except if you put two graphs side by side that tell the same but different story.
The April employment data was released on Friday by the Bureau of Labor Statistics, which is part of the U.S. Department of Labor, which, of course, is part of the U.S. Federal Government. The BLS paired these two graphs together. Chart 1 shows the civilian labor force unemployment rate from April 2010 through April 2012. Chart 2 shows the growth (or not) of nonfarm payroll employment in the same time frame.
Given this data, it’s a little hard to understand why the unemployment rate went down .1 point to 8.1% during a month when far fewer jobs were created than in the previous 6 months.
During the slow crawl out of the Recession, many economists and pundits positioned that for the unemployment rate to hold steady month over month, a minimum of 150,000 new jobs would need to be created in that month. And yet the data show that in a month when only 115,000 new jobs were created and the number of employed people was down 169,000, the unemployment rate still went down. How does that math work?
Here’s the chart that makes sense of it all direct from the BLS Employment Situation Report:
The civilian labor force actually decreased from March to April by 342,000; the number of employed people decreased 169,000; the number of unemployed people (still looking for work) dropped by 173,000; and the number of people not in the labor force grew by 522,000. What we can’t tell is how many of the unemployed became discouraged and stopped looking for work. They drop out of all calculations.
If we do the math, the lower unemployment rates over the last several months are not the result of job growth, but rather a shrinking civilian labor force and a decrease in the labor force participation rate.
While the numbers of the unemployed – that’s people unemployed and actively looking for work – appear to be shrinking, the numbers of people “not in the labor force” is growing. And growing rapidly – by nearly 3 million in the last year alone. We can’t tell from this data whether the rapidly growing number of people not in the labor force are Baby Boomers retiring (that wouldn’t be totally unexpected) or more discouraged unemployed people dropping out of the job search. But it’s a safe bet that it isn’t entirely people – Boomers or otherwise – voluntarily leaving the workforce.
So. The number of discouraged unemployed workers grows at the same time the number of participants in the labor force is decreasing. And that results in a lower unemployment rate. Maybe data is ironic after all.
How’s this scenario? What happens when the economy and the job market really improve and the discouraged unemployed workers re-enter the job market? Under this math, the unemployment rate could very well go up. The more workers are in the workforce — either employed or actively looking for work — the higher the number of jobs we’ll need to create to keep the unemployment percentage even.
Bottom line: the lowering unemployment rate isn’t about more workers going back to work at all. It’s about more workers leaving the economy. Really.