NPR: Why the unemployment rate fell

By Mathew Katz

Economists were surprised by today's drop in the unemployment rate, which went from 9.5 percent in June to 9.4 percent in July. Close watchers of the labor market had expected to see the figure rise to 9.6 or 9.7. White House press secretary Robert Gibbs told reporters today that President Obama still expects to see unemployment hit 10 percent this year.

So why did the number go down in July? Part of the reason is that employers cut fewer jobs -- by 247,000, against an average of 331,000 for the last three months, including July.

Another, and perhaps larger part of the answer is that one key number factored into the rate fell unexpectedly. Unemployment is the number of people out of work as a percentage of the total labor force. The labor force in everyone who's employed or who wants a job. In July, that total labor force fell by 422,000.

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http://www.npr.org/blogs/money/2009/08/why_the_unemployment_rate_fell.html

Why do you make the baby Jesus cry?

It's a human tears driven econ these days :cry:

If the total labor force fell, then if the unemployment number was constant (for example) the percentage of unemployed would go up not down. Their argument doesn't hold water.

A person who was previously counted as unemployed has left the equation completely, giving the appearance of the UE rate edging down.

Imagine there are 4/10 people unemployed, 2 of those people leave the labor market, now only 2/8 are unemployed. Unemployment has plummeted from 40% to 25%!

Conversely when we start to see recovery in the labor market, we will see months where the UE rate edges higher, and it will be a good thing, as discouraged workers rejoin the labor market.

converting their status from unemployed to retired. Some filed for and collected unemployment until they qualified for Social Security retirement benefits. Others dropped unemployment claims when they filed for pension benefits.

Sometimes the UE rate inches up in the first few months of recovery but there is considerable speculation that this will not happen with this recovery in part because of the number of baby boomers who retired early. That is especially true of public sector workers who suffer no reduction of pension benefits if they retire early with 20 or more years of service.

The civilian labor force fell.

The number of employed fell.

The number of unemployed fell.

The number of Not in Labor Force increased substantially.

and still get the job done.

At some point they cannot lay anyone else off, or they might as well close up shop.

- next step probably for some of them.

As is, abandoned empty strip-malls, and shells of big-box stores are becoming more prevalent.

The "IBM"s et al will just keep cutting and insourcing and outsourcing until no one is left but the parasitic CxOs - the rest will have to shutter I'd think.