It’s Still about the Jobs Stupid! Redux

The upward momentum in the unemployment rate seems to have abated as last month’s figure shows a statistically insignificant decrease to 9.4%. The unemployment rate itself is not the best indicator of what’s going on in the labor markets, but the changes from month-to-month give us some indication of improvement. Reuters reports that payrolls fell less in July giving some indication that things are slowly improving. This is a good indication that we may be approaching the bottommost point of the recession. The upward momentum is slowing.

Employers shed 247,000 jobs in July, the Labor Department said Friday, the least in any one month since last August, taking the unemployment rate to 9.4 percent, down from 9.5 percent in June.

“It suggests the recession will be ending before the end of the year. There isn’t any part of the economy that hasn’t shown some slowing in deterioration,” said Joe Davis, chief economist at Vanguard in Valley Forge, Pennsylvania.

Whenever economists teach about the job markets, we always mention that the unemployment rate should never be looked at as the sole indicator employment trends. Indeed, we alread see some discussion on the finance/econ blogs that remind us that it’s the underlying flows of people in and out of the job market as well as the rate of job creation that give us a full sense of what’s going on.

Daniel Indiviglio at The Atlantic asks Did the Unemployment Rate Really Go Down? and discusses one of the biggest bones of contention in measuring the rate itself, the discouraged worker. Discouraged workers are those people that have been unemployed and looking for work for so long that they’ve given up the search. Once you give up the search for a job, you leave the ranks of the ‘unemployed’ and you no longer count in the unemployment rate. The number of these folks becomes significant once a recession goes on for some time.

Read the rest of this entry »