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Behind Unemployment Figure, A Nuanced Outlook

Dec 3, 2011
Originally published on December 3, 2011 1:31 pm

The U.S. unemployment rate took a big tumble in November, from 9 percent to 8.6 percent, according to the government's monthly jobs data. Still, it's probably too soon to pop the champagne corks. A combination of forces caused the big drop, some good and some bad.

Getting a big fall in the unemployment rate is always good news in the White House, but President Obama was careful not to gloat at an appearance Friday in Washington.

"This morning we learned that our economy added another 140,000 private sector jobs in November. The unemployment rate went down," he said.

The president didn't make a big deal about the unemployment rate falling sharply — maybe because he's afraid it will go up again.

Diane Swonk, chief economist at Mesirow Financial in Chicago, says the president might be playing it down because there's another reason the rate fell so much: 315,000 people gave up looking for work.

"Many people are just not even trying right now," she says, "and seeing people just drop out of the labor force entirely is not the best reason in the world to have the unemployment rate move down."

Of course, the best reason to have the unemployment rate go down is because new jobs were created. There was some of that in November, but the headline number — 120,000 net new jobs — was not enough to bring the unemployment rate down.

That probably sounds like a contradiction — because it is.

The disconnect between the unemployment rate and the job growth number happens, says Swonk, because they come from two different sets of data. The headline unemployment rate comes from a survey of households. Meanwhile, every month, the headline job growth number comes from a survey of businesses.

"That's a survey of established firms, and it doesn't always capture changes in small business formation, the new businesses that are being created out there," Swonk says, "and we're starting to see some evidence that that may be picking up."

The fact is it takes a few months for the Labor Department to find those new businesses, like designer Anke Loh's new online fashion store, which was launched two months ago.

"In the online store you can see mainly scarves and shawls and a T-shirt line," Loh says. So far, she's the only person on the payroll.

"I do have freelance people, graphic designers, I mean, for every little bit of this company, I have people who help me," she says.

Loh says she hasn't received any forms from the Labor Department asking for the number of employees she has.

This is the kind of business that's not picked up in the statistics immediately, and it's much more likely to show up in the household survey because it's more grassroots than the survey of established businesses.

However, even if there are entrepreneurial juices producing jobs unnoticed in the official data, the economy continues to face many challenges. Right now, the darkest cloud may be the debt crisis in Europe. If there's a financial meltdown there, it would hurt the U.S. economy and the job market.

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SCOTT SIMON, HOST:

This is WEEKEND EDITION from NPR News. I'm Scott Simon. The U.S. unemployment rate took a big tumble last month, from 9 percent to 8.6 percent, according to the government's monthly jobs data. But it's probably too soon to pop the corks on a bottle of Asti Spumante. As NPR's John Ydstie reports, a combination of forces caused that big drop. Some good, and some are bad.

JOHN YDSTIE, BYLINE: Getting a big fall in the unemployment rate is always good news at the White House, but President Obama was careful not to gloat at an appearance yesterday in Washington.

PRESIDENT BARACK OBAMA: This morning we learned that our economy added another 140,000 private sector jobs in November. The unemployment rate went down.

YDSTIE: Notice the president didn't make a big deal about the unemployment rate falling sharply - maybe because he's afraid it will go up again. But Diane Swonk, who is the chief economist at Mesirow Financial in Chicago, says the president might be playing it down because there's another reason the rate fell so much: 315,000 people gave up looking for work.

DIANE SWONK: Many people are just not even trying right now, and seeing people just drop out of the labor force entirely is not the best reason in the world to have the unemployment rate move down.

YDSTIE: Of course, the best reason to have the unemployment rate go down is because new jobs were created. There was some of that in November, but the headline number - 120,000 net new jobs - was not enough to bring down the unemployment rate. Now, you're probably saying, wait a minute, that's contradictory. You just said the unemployment rate dropped sharply. You're right. And the disconnect happens says Diane Swonk because the jobs number and the unemployment rate come from two different sets of data.

The headline unemployment rate comes from a survey of households. Meanwhile, every month, the headline job growth number comes from a survey of businesses.

SWONK: That's a survey of established firms, and it doesn't always capture changes in small business formation, the new businesses that are being created out there, and we're starting to see some evidence that that may be picking up.

YDSTIE: The fact is, it takes a few months for the Labor Department to find those new businesses, like designer Anke Loh's new online fashion store, launched two months ago.

ANKE LOH: In the online store you can see mainly scarves and shawls and a T-shirt line.

YDSTIE: So far though, she's the only person on the payroll.

LOH: I do have freelance people, graphic designers, I mean, for every little bit of this company, I have people who help me, yeah.

YDSTIE: Have you gotten any forms from the Labor Department asking you about the number of employees that you have?

LOH: No, I didn't.

YDSTIE: This is the kind of business that's not picked up in the statistics immediately, and it's much more likely to show up in the household survey first because it's more grassroots than the survey of established businesses. In fact, in November, the household survey found more than twice as much job growth as the survey of businesses did, and that's another reason the unemployment rate went down sharply. But even if there are entrepreneurial juices producing jobs under the radar, the economy continues to face many challenges, including the debt crisis in Europe. If there's a financial meltdown there, it would hurt the U.S. economy and the job market. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.