The U.S. unemployment rate was rose to 8.3% in July and a broader measure ticked up to 15%, even as the economy added 163,000 jobs. Why the increase?
The key reason is because the two numbers come from separate reports. The number of jobs added — the 163,000 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, especially in months such as July where there are big seasonal issues at play. This month, the household survey was telling a darker tale than the poll of establishments.
The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks, and that number was up by 45,000 in July….
This month 150,000 people left the labor force, lowering what is known as the participation rate. That can lead to a drop in the unemployment rate if people previously unemployed leave the labor force. The drop in the labor force even as the number of unemployed grows can be worrying, and indeed there was an increase in discouraged workers in July.
A further worrying sign came in the count of persons counted as employed, which fell by 195,000 last month.
James Pethokoukis notes (w/chart below):
Only in a world of lowered, New Normal expectations was the July jobs report anything less than another disaster for U.S. workers. Nonfarm payrolls rose 163,000 last month as the unemployment rate rose to 8.3%. In addition, employment for May and June was revised by 6,000 jobs.
– Not only is the 8.3% unemployment rate way above the 5.6% unemployment rate that Team Obama predicted for July 2012 if Congress passed the $800 billion stimulus plan. It’s way above the 6.0% unemployment rate they predicted if no stimulus was passed.
– This continues to be the longest stretch of 8% or higher unemployment since the Great Depression
– If the labor force participation rate was the same as when Obama took office in January 2009, the unemployment rate would be 11.0%.
– Even if you take into account that the LFP should be declining as America ages, the unemployment rate would be 10.6%.