Lower jobless rate is a surprise

Chris Farrell From chief economics correspondent Chris Farrell

The statisticians at the Bureau of Labor Statistics reported that payrolls fell by 20,000 in January. The consensus expectation had been for a modest gain in payrolls. Instead of hiring, management is requiring existing workers to put in more hours in the office and on the assembly line.

Employers typically hike the hours of their employees early in a recovery before posting help wanted signs online. The number of temporary jobs rose by 52,000, too.

However, the drop in the unemployment rate from 10% to 9.7% was an even bigger surprise. That’s a big percentage change. To some extent the number should be treated warily since it tends to be a volatile survey.

Still, many economists expect the rate will climb higher in coming months. Here’s the thing: The increase could be taken as a good sign so long as it’s temporary. It seems counterintuitive — OK, it is counterintuitive — but it appears that a majority of economists are optimistic that the recovery is for real and, therefore, that the next move in the unemployment rate could be up, not down.

Put it this way: If in coming weeks the economic statistics suggest the expansion is taking hold and if the payroll numbers begin climbing back into positive territory, odds are that the unemployment rate will go back up. The temporary increase in the unemployment rate would reflect rising confidence in the recovery. (Later on, of course, the unemployment rate will decline as companies boost their hiring.)

The reason why optimistic economists expect a higher unemployment rate over a short period of time reflects how the unemployed are counted.

The unemployment rate comes from a monthly household survey. It’s separate from the monthly establishment survey of employers for figuring out the payroll number. The headline unemployment rate reflects everyone without a job who is actively seeking work. It also includes anyone on temporary layoff. It excludes anyone who wants a job but has stopped looking because they think it’s a waste of time.

Here are two examples from the BLS Web site.

1) Yvonne Bennett reported that two weeks ago she applied for a job as a receptionist at the Capitol Travel Agency and the Equity Mortgage Lending Company. She is awaiting the results of her applications. Yvonne is unemployed because she made a specific effort to find a job within the prior four weeks and is presently available for work.

2) Mrs. Jenkins tells the interviewer that her daughter, Katherine Marie, was thinking about looking for work in the prior four weeks but knows of no specific efforts she has made. Katherine Marie does not meet the activity test for unemployment and is, therefore, counted as not in the labor force.

When the Katherines of society decide it’s worth looking for work, the unemployment rate will go up. They’ll be officially labeled as unemployed, largely reflecting greater optimism about jobs and the economy. The unemployment rate will start declining again if their job-hunting optimism proves right.

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