Why Did the Unemployment Rate Go Down?

The unemployment rate decreased to 9.4 percent, falling for the first time since April 2008 and providing yet more evidence that the economy seems to be rounding a corner. Employers cut about 250,000 jobs in July -- the fewest since last August, and far below most analysts expectations, which clustered around the 300,000 mark.


wsjjoblosses2009.png

Also good news: June and May unemployment numbers were revised downward by 40,000.

A quarter-million jobs lost is a sobering amount, but considering that monthly job losses climbed higher than 700,000 in January of this year, they provide clear evidence that the economy is improving, even at a slow pace. You can see the economy beginning to dig itself out of jobless ditch in the WSJ graph to the right, which shows monthly nonfarm job losses per month since 2008

Why did unemployment essentially remain unchanged, decreasing by 0.1 percent? A couple theories. We're seeing a slow down in layoffs as companies appear to be reigning in the firing binge. The massive layoffs to the auto industry had already taken place, and auto employment actually increased. Second, the unemployment rate is calculated by unemployed Americans divided by the total labor force, and more Americans are not being counted because they are considered "marginally attached." Finally we could be seeing a seasonal trend as fewer people might be entering the workforce in July. Economists still warn that unemployment could stretch over 10 percent later this year.

It's worth remembering that this job economy is likely the worst since the Great Depression. Here's a graph, from Calculated Risk, illustrating the number of jobs lost since the beginning of this recession compared each recession in the last 60 years (expressed as percentage of jobs held before the recession). No recession since the Great Depression has suffered this many job losses this long after the recession started:
570 joblossesthisrecessionjuly.pngThree sectors reported growth -- the same three sectors we've been following at Atlantic Business for months: health services, education and government. This isn't a trend specific to the recession. In the last ten years, the health/ed/gov sector has far outpaced job growth in the rest of the economy. In fact, if you factor out that tri-sector, American job growth in the last decade has been negative.

healthedgov.png

My colleague Dan Indiviglio will have more later this morning on why we should take these numbers with a grain of salt...


Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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