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Fall In US Unemployment Rate, But Does It Indicate Growth?

Updated : February 5th, 2021

The latest data released by the Bureau of Labor statistics suggests that the jobless rate has gone down by 0.2 percent in the month of July.

In June the jobless rate was 7.6 and has fallen to 7.4 in July, the lowest rate since December 2008.

The private sector added 161,000 jobs in July. This sector was expected to add at least 195,000 jobs after a prior estimate of 202,000.

Most of the gains were in retail trade, food services and bars, financial activities and wholesale trade. The government, which has been shedding jobs for months under tighter budgets, added 1,000 jobs.

Is The Unemployment Rate Coming Down?

Though the data shows a progressing economy, is this scenario a reality? A closer look at the labor participation tells a different story.

Ever wondered how is this unemployment rate calculated. How is the jobless rate going down when so many of your friends and relatives are unemployed? What is the “real unemployment rate”? And, should you believe the numbers?

If you are thinking about the same then yes, here is something you must know about the jobless data, and how BLS (Bureau of Labor Statistics) functions?

On the first Friday of every month, the BLS releases its unemployment assessment. The report contains employment data from the previous month and is made up of two figures. The jobless rate and the total nonfarm payrolls  which consist of general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, farm workers.

The government determines these figures by collecting information from a large sampling of individual households and employers.To find out who’s working and who’s not, two aspects are considered.  First, the Census BLS surveys about 60,000 household and only questions about employment are asked.  This is what’s called the household survey.

At the same time, it checks in with nearly half a million worksites. They gather the information on how many employees were on the payroll the month before.

Then the independently collected data is compiled and the jobless rate is calculated and released in the following month.

What Is The Real Unemployment Rate?

The real unemployment rate should include all those who are not working, exhausted their state and federal unemployment benefits, people who have given up looking for job, all those who are willing to work full time but fail to land up a job and take up part time work, unemployed youth and every measurable data which contribute to the labor force of an economy.      no-job

But the labor department figures do not count those who do not apply for unemployment benefits because:

They no longer qualify for unemployment benefits

Never qualified for unemployment benefits because they have never been able to find a job.

People who are underemployed in terms of hours, pay, benefits etc.

Who are grossly overqualified for their jobs such as people with university degrees bagging groceries, working at fast food joints, driving trucks etc.

The Labor Department figures do not count people who are unable to enter the labor market, those who have given up looking for work, or who never had the chance to enter the labor market, such as teenagers and young adults.

To get an accurate data the “U-6” data has to be taken into consideration. The “U-6” unemployment rate, which adds together unemployed people, those who are working part-time because they can’t find anything better, and some people who have recently just given up looking for work in despair.

Though the figures show a glossy picture the reality is striking.

Jim Morris (name changed to protect identity of the person) says “In the town I live in, there are more and more people standing on highway medians with homemade signs saying something like “please help, homeless, veteran, will work for food etc.” I know it’s not a scientific survey and the situation indicates that things are going in the wrong direction. Every month when I look at the jobless figures it surprises me, though I know that it’s not a real picture.

The current U-6 rate for the month of July is 14 % down by 0.3 percent in comparison to June. Yet not a great improvement.

On the recently released data, Barclays Capital economist Peter Newland called it “a clearly weaker-than-expected report,” The Associated Press reports. He adds: “But one should not overstate it — the jobless rate continues to trend down and average job growth of 175,000 will be more than enough to continue to push it lower.”

When we refer to “economic recovery”, we generally look for restoration of confidence which is not happening in the current job market. Therefore there is a long road ahead for the economy to be back on track.

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