Friday's figures showed an unexpected fall in the unemployment rate. Is the recession over? Possibly, explains James Hamilton, but it would be wise to reserve judgment for a while yet.

Perhaps the loudest cheering over the BLS report was because the unemployment rate improved from 9.5% in June to 9.4% in July. But let's look at how the net flows behind that calculation break down. The BLS only counts you as "unemployed" if you both (1) don't have a job and (2) have taken active steps within the last 4 weeks to try to find a job. According to the household survey from which the unemployment rate is constructed, there were 155,000 Americans on net who quit or lost their jobs in July but didn't immediately look for a new job, so those people newly without jobs don't contribute positively to a higher unemployment rate. And 267,000 Americans who reported themselves to be unemployed in June still weren't working in July but had also stopped actively looking for a job, so they're no longer counted as unemployed. That last development is the reason the unemployment rate went down. But given the current environment, it's hardly appropriate to interpret the fact that many people have simply stopped looking for jobs as reflecting an improving economy. Unless we get much better employment reports in September and October than we did in August, the unemployment rate is sure to climb back up.

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