Last Friday the unemployment rate shrank for the first time in over a year, from 9.5% to 9.4%. The press and stock market reacted as if the recession were over. But Forbes took a look at the numbers behind the numbers which reveals a very different set of conclusions:

1. 247,000 jobs were lost in July. This hardly signals an improving job market nor a reversal of the economy.
2. The unemployment rate shrank because 422,000 people exited the job market. Thus the labor pool shrank because a large number of people just gave up looking for work — enough people to more than just offset the job losses. Again, not a good sign. Forbes says:
   

   For regular unemployment, 247,000 jobs were lost and 422,000 people left the labor force altogether, but since the latter number is larger, the rate “improves.” That’s why the 9.4% rate is the bad news.

3. The number of people in the “long-term unemployment” category (more than six months) increased by a whopping 584,000, raising the total to 5 million. Stunning.

On the other hand, Forbes finds some nuggets of good news in the unemployment numbers:

1. Economists expected 325,000 jobs to be lost, so the lower number (by 78,000) is a bit of good news.
2. Although wages are still down from where they were a year ago, they rose by 0.2% last month. That’s nice, both for those that are still receiving them and for those (few) about to secure a position.
3. After declining steadily for the last ten months, the number of hours worked held steady, meaning hours aren’t being cut.

Forbes concludes with the observation that the overall economy is indeed improving, even if the unemployment rate is not among the indicators:

The surprising, but likely misunderstood turnaround in the unemployment rate will probably send a positive message to consumers, and even markets. John Brady, a senior vice president at MF Global scoffed at the reaction to the report in a note, “Joy and Jubilation rule as ‘only’ 247,000 jobs were lost last month. If we were to pop champagne corks and spike the punch bowl, we could invite everyone EXCEPT the unfortunate 247,000 who lost their jobs AND those who dropped out of the labor pool.”

I empathize with those unsuccessfully looking. With employment being a lagging indicator (that is, the economy has to improve before people begin getting their jobs back), I don’t see any real improvement until next year. Here’s hoping for another extension of unemployment benefits.

Technorati Tags: Unemployment, US Economy, The Incredible Shrinking Workforce