A few weeks ago the Labor Department reported that the US jobless rate dropped to 8.3% in January. This is the fifth month in a row the nation’s unemployment rate has fallen and it is presently at the lowest level since February 2009.
As a result, many people are optimistic that the US economy is recovering more quickly than previously thought. However, that’s not necessarily the case. If you take a closer look at these unemployment numbers you will see that a big reason as to why they are declining is because fewer Americans have been looking for work.
The labor force participation rate measures the number of Americans ages 16 – 64 who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. During an economic recession many workers often get discouraged and stop looking for employment, as a result, the participation rate decreases.
In January the labor force participation rate dropped to 63.7%, a level not seen 1983.
The drop in the participation rate is important to note when looking at last month’s unemployment data because unemployment figures reflect the number of people who are looking for jobs but are unable to secure employment. It does not take into account those persons who have stopped looking for work.
As time marches on we can assume that those people without jobs will once again start looking for work. When that happens it is likely that the unemployment rate will rise.
It’s my opinion that the unemployment situation in this country is improving. Let’s not forget last month’s non-farm payroll number was +243,000. However, I don’t think that the improvement to 8.3% accurately reflects the amount of working-age Americans that are presently unemployed.
What do you think? Do you think that the labor participation rate will begin to improve and if it does it will cause the unemployment rate to rise? Click here to join the discussion!
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