Unemployment Rate Falls To 9.7%, But 20,000 Jobs Were Lost?

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The national unemployment rate declined in January to the seasonally adjusted rate of 9.7% from 10.0% in December, according to the Bureau of Labor Statistics. The rate beat consensus expectations of remaining unchanged at 10.0%. But even though the national rate declined, 20,000 more jobs were lost. That was worse than consensus expectations, where economist expected a gain of 15,000 jobs. This is one of those months where the decline in rate should warrant little more than cautious optimism. In reality, the economy still lost jobs and the employment situation is quite ugly. Today's report definitely requires some analysis to understand what's really going on.

First, here's how BLS shows the unemployment rate's progression over the past few years:

unemp 2010-01 cht1.PNG

And here's its chart of actual job losses:

unemp 2010-01 cht2.PNG

I'll get to the weirdness of the rate declining significantly while more jobs were still lost in a second, but this graph tells a fairly unambiguous story: the trend is still in a good direction. Even though the economy is a net job loser, we're definitely flirting with real job growth. That should begin over the next few months.

First, let's tackle the question of what this seemingly conflicting data means. This positive news could have a lot to do with seasonality. Remember, the reported number is seasonally adjusted. It says that in January, we had 14.8 million unemployed Americans, which is about a half million fewer than the 15.3 million unemployed in December. Sounds great, right?

Maybe, maybe not. If you don't adjust for seasonality that changes. A lot. Then, January had 16.1 million unemployed, while December had 14.7 million -- an increase of 1.4 million jobless Americans.

There's a similar story with rates. Seasonally adjusted, the national rate dropped to 9.7% from 10.0%. If you don't adjust for seasonality, then the unemployment rate rose from 9.7% in December to 10.6% in January. Here's the graph I often show that details the historical variance over the past few years:

seasonality 2010-01.PNG

This wide variance isn't surprising -- just look at January 2009. We saw the same sort of thing there. In that case, however, the seasonally adjusted data rose to meet the unadjusted rate in April. Let's hope we don't see the same sort of thing this year. Otherwise we'll be nearing 11% come spring.

The trend of additional discouraged workers also doesn't paint a very positive picture. They leaped to over 1 million:

discouraged 2010-01.PNG

This isn't what you'd like to see. It's the largest month-over-month increase in discouraged workers since the start of the recession. If you thought a new year might encourage more unemployed Americans to decide to try to find a job, you'd have been wrong. And don't forget: those 1 million Americans will need to enter the work force eventually, which will cause the rate to rise.

The non-seasonally adjusted rate that takes into account discouraged workers rose a full percentage point from 10.2% in December to 11.2% in January. If you want to take seasonality into account, the news is better, but even there the rate only came down from 10.5% to 10.3% from December to January.

The broader marginally attached unemployment rate continues to be very ugly. The number of jobless there are essentially unchanged, but that rate is 11.2% seasonally adjusted and 12.0% unadjusted. Adding in those forced to work part time brings those rates up to 16.5% and 18%, seasonally adjusted and unadjusted.

For a little industry-level detail, construction is still losing jobs, with the sector shedding 75,000. Manufacturing also continues to lose jobs, but the numbers aren't looking as bad, with only 11,000 lost in January.

Temp and retail added jobs: 52,000 and 42,000, respectively. I noted the increase in temp jobs last month. This trend is an indicator that employers will probably begin hiring more permanent workers before too long. The most resilient sectors, health care and the federal government continued to add jobs. They grew by 15,000 and 33,000 jobs, respectively.

I should also note that December's job losses were revised from 85,000 to 150,000. That's almost double. Let's hope we don't see a similar revision for January.

The duration of those unemployed also continues to be troubling. Those unemployed for more than 27 weeks increased again. 6.3 million Americans have been unemployed for more than 27 weeks:

duration 2010-01.PNG

I think you should look at this confusing report today in two ways. Seasonality is useful for recognizing trends. As a result, the trend is clearly positive. But unadjusted unemployment shows total worker suffering. And that's quite awful, as the broader rate including marginally attached unemployed who can't find full time work is up to a whopping 18% -- the highest we've seen since the beginning of the recession. So while the economy is beginning to make a turn, things are still very, very bad on the actual employment front.

Lastly, readers who took yesterday's unemployment poll didn't fare too well. Only 2% accurately predicted 9.7%. It seems Atlantic readers are a pessimistic bunch -- a full 79% thought the unemployment rate would rise. Here are those results:

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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