Unemployment Leaps To 9.7%

Well, the unemployment picture in August was quite ugly. The official unemployment rate rose from 9.4% in July to 9.7% in August, according to the Bureau of Labor Statistics. Additionally, non-farm payrolls declined by 216,000. 0.3% is the largest jump since May. On the surface it looks quite bad, but let's do a little analysis on what today's unemployment report really says. It might not be quite as bad as it looks.

First, here's some perspective, from BLS:

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And here's even more:

bls unem cht 2 09-08.PNG

These are not pretty pictures. Still, I'm going to argue that today's news isn't quite as terrible as some may say. First, seasonality should be considered. The official number is seasonally adjusted. If you don't take seasonality into account, the unemployment rate actually fell from 9.7% in July to 9.6% in August, according to BLS.

Next, I like to consider discouraged workers. This trend is also positive. If fact, the number of discouraged workers decreased in August to 758,000 from 796,000 in July. That 38,000 decrease is kind of a drop in the bucket, but the trend matters.

I would actually say that this is a very good thing. If Americans are becoming less discouraged about employment, then optimism about the economy is probably increasing. Either that or the unemployed were just taking the summer off and began to look for a job once August hit. Let's hope my first explanation is the greater effect.

If you include discouraged workers, and don't adjust for seasonality, these numbers look even better. Unemployment including discouraged workers dropped from 10.2% in July to 10.0% in August. I'm always very skeptical about whether seasonality should matter, and if you take that out of the equation this month, then the picture improves even more.

So yes, 9.7% is a dreadfully high number and 0.3% is the largest increase we've seen in months. But there is some reason to find optimism in these numbers, since unemployed Americans are less discouraged and seasonality might be skewing things a bit. If this trend continues, we will likely continue to see unemployment tick up a bit over the next several months as more discouraged individuals re-enter the work force. After all, if they all joined the workforce tomorrow, seasonally adjusted unemployment would be 10.1% instead of 9.7%.

Finally, I would like to congratulate our readers. You guys did a smash-up job of predicting the number for August. 9.7% or higher got the second largest percentage of votes with 27% voting correctly. That's a vast improvement over last month. Here's the breakdown: