Friday, January 10, 2014

Two Directions for Unemployment

The unemployment rate took another big drop this morning, according to the latest release from the Department of Labor. The headline figure fell from 7.0 percent in November to 6.7 percent in December. For 2013 as a whole, unemployment dropped 1.2 percentage points from the 7.9 percent we had back in January.

What's really strange about that is that the number of new jobs added in December was just 74,000, which is the lowest monthly increase in three years. There are a couple of reasons why these two numbers might not be in sync. First of all, the workforce shrank in December, meaning the denominator for the unemployment rate got smaller. It's easier to have a smaller unemployment rate when the number of potential employed people is smaller.

Secondly, the numbers come from two different surveys, a household survey and a business survey. These numbers sometimes get out of whack, but they also converge over time. Don't be surprised if, in the coming months, the December jobs number gets revised upwards, or the unemployment figure ticks back up, or both.

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