Pinning Down the Unemployment Rate
(Daily Finance) — Last week’s surprisingly sharp decline in the unemployment rate from 9.4% to 9% and equally surprising anemic job growth — 36,000 new jobs — left a lot of investors scratching their heads. How could the unemployment rate plummet so significantly while a such a trivial number of new jobs were created? If we simply extrapolate those numbers, we get some nonsensical results. If adding 36,000 jobs to the 139 million jobs in the U.S. economy lowers the unemployment rate by 0.4 percentage points, then adding just 720,000 jobs should lower the unemployment rate by 8 points — from 9% to only 1%. Yet the Bureau of Labor Statistics data shows that 812,000 jobs were added in the year from January 2010 to January 2011 (138,511,000 vs. 139,323,000). Based on the unemployment rate announced last week, we could expect that those 812,000 additional jobs would have lowered the unemployment rate to near-zero. But of course, we know they didn’t. What gives? The basic reason why the numbers don’t add up is that the BLS is constantly adjusting the variables of this basic equation: Number of people in the workforce (civilian labor force) – number of people with jobs (employed) = number of unemployed people.