The Recent Jobs Report is a Distraction: How to Accurately Judge Our Employment Situation

The Bureau of Labor Statistics (BLS) released a new jobs report on Friday, reporting an addition of 178,000 jobs and a nice, low 4.6 percent unemployment rate. FiveThirtyEight’s Ben Casselman, their chief economics writer, said that Trump and Clinton could both spin this jobs report, but he also wrote that “Millions of Americans abandoned the labor force during the recession and are now returning at a trickle, if that.” But isn’t it a good thing that the unemployment rate is low and jobs were added? Well, yes, but also no.

The Official Unemployment Rate

Then unemployment rate is only a crude, nonspecific measure of unemployment. There are, in fact, six measures of unemployment. They’re usually referred to as U-1 through U-6, U-1 being the least inclusive and U-6 being the most inclusive. The “official” unemployment rate, which is the one that is often referred to as the “unemployment rate,” is the U-3 measure. In other words, the unemployment rate isn’t a standalone measure of the actual situation.

Civilian Unemployment Rate

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How to Confirm the Positivity of the Unemployment Rate

As I mentioned earlier, no measure of unemployment (no matter how inclusive), is a standalone measure of the accuracy of our employment situation. In order to confirm how positive the unemployment rate or jobs reports are, we should always compare it to the trends found in other economic indicators. Specifically, I recommend looking at Civilian Labor Force, Labor Force Participation Rate, and Not in Labor Force. Here are the charts (with links to the original page) for each graph, respectively, over the past 12 months.

Civilian Labor Force

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Measured in thousands of persons, the civilian labor force is not a measure of employment, but a measure of people who are able to work, in a sense. This is an indicator that, obviously, is not a good one to see decreasing. This can be affected by people retiring, so we need the other indicators mentioned to see what’s going on. It also measures the people who are unemployed and actively looking for work, since they are technically part of the “labor force.”

Civilian Labor Force Participation Rate

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Also measured in percentage (like the unemployment rate), the labor force participation rate is sometimes viewed by economics enthusiasts as a better measure of fluctuations in employment. This measures employment within the civilian labor force and a downward trend, decreasing, is viewed as bad.

Not in Labor Force

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This economic indicator measures people who are able to work, but just aren’t looking for work due to economic reasons or people who gave up after a long time of unemployment (which is alternatively measured as Discouraged Workers). An upward trend in this indicator is viewed as bad.

Comparing Indicators Refines Our Understanding

The reason why I’m not so bullish concerning the latest jobs report is because we aren’t seeing the civilian labor force increasing. That means that we’re not creating enough jobs to keep up with people leaving the labor force. Labor force participation, in theory, should be increasing whenever the unemployment rate is down, but the fact that it’s down while the unemployment rate is down is an indication that people have just given up looking for work. Both of these previous comparisons are easily confirmed and validated by not in labor force showing an increase.

Nonfarm Payrolls vs Initial Claims (Frequency changed to monthly)

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Something we’ve seen recently is a small upward trend in jobless claims, which are claims for unemployment insurance. To me, this is troubling since the unemployment rate is low and the number of jobs added to our economy has been steadily climbing. Perhaps, this is an indication that we are seeing a spike in part-time jobs. The only problem is that part-time workers have been decreasing recently. From what I can tell, there hasn’t been much, if any, indication of a recession that is coming.

My way of comparison isn’t meant to be a way to explain the reasoning behind economic issues. Rather, it’s a way to gauge the accuracy and validity of jobs reports. While many in our nation are praising the president for these “strong” numbers, the rest of us who know how to look at the economy like this are trying to figure out what’s going on and what we can do to actually improve the situation. Until we can get more people to understand that we’ve been lied to about this optimism, we probably won’t ever get out of this revolving door of blind support for policies that only seem like they’re producing results when, in reality, they’re covering up the real problems in our economy.

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