Why Did the Unemployment Rate Drop?
The decline in the unemployment rate wasn’t because more people had jobs. In fact, the number of people employed as measured by the household survey declined by 119,000. The fall came from fewer people looking for work in August and dropping out of the labor force. The number of jobs added to the economy and the unemployment rate come from separate reports.
The number of jobs added — the 96,000 figure — comes from a survey of business, while the unemployment rate comes from a survey of U.S. households. The two reports often move in tandem, but can move in opposite directions from month to month. In August, the household survey might have recorded a drop in the jobless rate, but below the headline number were more worrying signs.
The unemployment rate is calculated based on the number of unemployed — people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The “actively looking for work” definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. That number declined by 250,000 in August, but it was overwhelmed by a 368,000 drop in the size of the labor force. That suggests that many of those 250,000 stopped looking for work not because they found a job, but because they dropped out of the labor force. The unemployment rate is calculated by dividing the number of unemployed by the total number of people in the labor force.Comment: Article may be behind the WSJ paywall. Results are dismal!