Friday, August 7, 2009

Good job news? Not so much

In its monthly jobs report, the Department of Labor reported this morning that the nation's unemployment rate fell slightly in July on a seasonally adjusted basis to 9.4 percent. This represents the first drop in the unemployment rate since April 2008.

A fall in the unemployment rate is good news and a sign that the economic downturn is nearing its end. However, it masks the fact that the overall employment situation continues to deteriorate.

The unemployment rate is defined as the ratio of those who are out of work but looking for a job (unemployed people) divided by the civilian labor force, which includes employed and unemployed people. The DoL estimated that the number of unemployed people fell by seasonally adjusted 267,000; however, this was accompanied by a fall of 155,000 in the number of employed people. Overall, the civilian labor force fell by 422,000, meaning that the number of people who have elected neither to work nor look for work has grown.

A better indicator of the strength of the labor market is the proportion of the adult population that is employed. As shown in the graph below, this number dipped to 59.4 percent, the lowest percentage in 25 years.

U.S. employment-population ratio 01/1969 - 07/2009 (Source: BLS)

From a different data series, the DoL also reported that the number of non-farm jobs fell by 247,000. Although this indicates continued deterioration, it is a signficant moderation in the trend--it was the smallest decrease since August of last year (in addition, June's job loss figure was revised downward). Nevertheless, the number of jobs lost since the beginning of the recession in December 2007 has swelled to 6.7 million.

We won't be in a full recovery until the number of jobs and the number of people working increases. That part of the recovery still appears to be some way off.