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Friday, August 7, 2009

Loss of Hope Is Good News?

The big economic news of the day is that the unemployment rate dropped one-tenth of one percent. The Obama administration is hailing this as the start of a turnaround and a sign that the stimulus spending is working, something of the end of the beginning or the beginning of the end.

But in reality, the slight drop probably reflects the drop in the "participation" rate, meaning that the long-term unemployed are dropping out of the job market because they have given up. As explained by David Indiviglio at The Atlantic:

As a recession drags on for this long, and people are unable to find jobs, they begin leaving the workforce. They become discouraged regarding job prospects. BLS [Bureau of Labor Statistics] offers an unemployment rate that includes these discouraged workers. In June 2009, that was 10.1%. For July, it was 10.2%.

Given this change in unemployment including discouraged workers, I think it's pretty clear that the 0.1% decrease in the reported unemployment rate can be misleading. In reality, those who would like a job but don't have one increased by 0.1% up to 10.2%.
To put it another way, the good news being trumpeted by the Obama administration results from a loss of hope by unemployed workers. You know we are in trouble when the loss of hope is the best economic news the administration can muster.

Related Posts:
U.S. Hits Highest Unemployment Rate Since ... Europe
The Stimulus Plan -- It's In There!

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1 comment:

  1. But, this could mean that "loss of change" is just around the corner!