People understandably are often confused about how the unemployment rate can indicate one thing while the jobs created number suggests otherwise. Simply put, they come from different surveys.
Why Did the Unemployment Rate Drop? has the explanation for the Augusta results reported earlier today:
"The U.S. unemployment rate dropped to 8.1% in August and a broader
measure dropped even more to 14.7%, even as the economy added a meager
96,000 jobs. Why the drop?
The decline in the unemployment rate wasn’t because more people had
jobs. In fact, the number of people employed as measured by the
household survey declined by 119,000. The fall came from fewer people
looking for work in August and dropping out of the labor force.
The number of jobs added to the economy and the unemployment rate
come from separate reports.
The number of jobs added — the 96,000 figure
— comes from a survey of business, while the unemployment rate comes
from a survey of U.S. households. The two reports often move in tandem,
but can move in opposite directions from month to month. In August, the
household survey might have recorded a drop in the jobless rate, but
below the headline number were more worrying signs.
The unemployment rate is calculated based on the number of unemployed
— people who are without jobs, who are available to work and who have
actively sought work in the prior four weeks. The “actively looking for
work” definition is fairly broad, including people who contacted an
employer, employment agency, job center or friends; sent out resumes or
filled out applications; or answered or placed ads, among other things.
That number declined by 250,000 in August, but it was overwhelmed by a
368,000 drop in the size of the labor force. That suggests that many of
those 250,000 stopped looking for work not because they found a job, but
because they dropped out of the labor force. The unemployment rate is
calculated by dividing the number of unemployed by the total number of
people in the labor force.
The drop in the labor force lowered what is known as the
participation rate, which is the percent of the population who are
working or looking for work. That rate at 63.5% is at the lowest levels
since women first started entering the labor force in large numbers.
Part of the decline is no doubt due to retiring Baby Boomers, but part
is also discouraged workers giving up looking for a job.
Meanwhile, the broader unemployment rate, known as the “U-6″ for its
data classification by the Labor Department, was dropped to 14.7% from
15% a month earlier. The U-6 figure includes everyone in the official
rate plus “marginally attached workers” — those who are neither working
nor looking for work, but say they want a job and have looked for work
recently; and people who are employed part-time for economic reasons,
meaning they want full-time work but took a part-time schedule instead
because that’s all they could find.
In August, the drop in the U-6 rate was driven by the same factors
that caused the drop in the unemployment rate, but it fell even more
because of a big drop in the number of part-time workers who would like
I hope the above explanation of how the numbers work helps clarify matters for those of you who may not be all that familiar with these things.
It's always important to remember that (1) how many people are working, (2) how many hours they're working, (3) how productive they are during those hours worked and (4) how much they're paid to do that work as a combined TOTAL tells the labor story.
That labor story in turn helps to tell the country's GDP or total output story.
Which then brings us back to the labor story.