Jobs Report: 5.1 Unemployment Rate Doesn't Tell the Whole Story

The monthly jobs report in the U.S. comes from the Bureau of Labor statistics'(BLS) Current Population Survey(CPS). The CPS is a survey conducted by the United States Census Bureau for the BLS. The BLS uses the data to provide a monthly report on the Employment Situation in the U.S. This report provides estimates of the number people who are employed and unemployed in the United States.

In August, the economy added an estimated 173,000 jobs and the unemployment rate dropped to 5.1%. This is lower than the estimated 217,000 jobs most economists had expected.Employment in health care rose by 41,000. Employment in financial activities rose by 19,000 in August.
in August. 

Though America has added jobs in recent months, this is a good reason to be optimistic. There is some concern  that the increase in jobs has not been seen as widely in the manufacturing, according to Thomas Hemphill & Mark Perry :

"In September 2012, President Obama announced a national goal to create 1 million new manufacturing positions by the end of 2016. Since that announcement, the US manufacturing sector has created payroll jobs at a rate of only 11,000 per month and fewer than 300,000 jobs in total over the last 27 months. That rate of factory job creation would generate only about 560,000 new jobs by the time Obama leaves office -- a 440,000 job shortfall compared to the president's unrealistic goal of 1 million new factory jobs by the end of next year."

"We'll be lucky if we gain 600,000 jobs by next December. Even in that case, factory employment would only return to the January 2009 level of about 12.5 million payroll jobs, which at that time was the lowest level since the late 1940s, and 7 million jobs below the 1979-peak of 19.5 million factory jobs."


27 thousand jobs in manufacturing mining and logging were lost last month, undoing all the gains from the previous month. The lack of manufacturing jobs is a concern because they provide stability and strength to the economy.

So is the 5.1% number telling us the full story? The number you see in the headlines is referred to as the U-3 number which does not include:

• People who have been out of work for more than a year
• Those in part-time positions for people who would prefer full-time employment
• People so discouraged that they’ve stopped looking for work

When we include these numbers, referred to as the U-6, the unemployment rate is nearer to 10% down from 12% last year. It is important to note that both numbers have been decreasing steadily since the beginning of the recession, and especially within the last two years. It is unclear why the news media only uses the U-3 number in their report.

The unemployment rate drop can also be attributed to fewer people being counted as out of work but instead being considered outside of the workforce. The jobs report’s survey puts the number of unemployed persons down 237,000 to 8 million. The number of people out of the workforce climbed 261,000 to a fresh record of 94 million. We currently have the lowest labor participation rate in decades.

This can be attributed though to increased retirement by the baby boom generation. The survey includes all working age adults (age 16 and up). 94 million includes all stay at home mom's, people in college, and those who are retired.

Why does the unemployment number matter so much right now? The Federal Reserve has waited for the economy to show enough strength to start increasing interest rates. Most economists believed that if August showed strong numbers in job growth that would be the signal to being increases. One concern has been wages, which have not shown much growth for the last year, but which grew 8 cents in the month of August, which is cause for optimism.

While the report may not change views that the U.S. economy remains strong, the global markets remain unsteady including significant decline in China. This instability could further complicate the Fed's decision at a policy meeting mid month.

The reason why the interest rate is so important to job growth as explained by CNN Money:

"One of the Federal Reserve’s mandates is is to maintain full employment. When unemployment rises, it can try to stimulate growth by cutting rates. The idea is that cheaper borrowing makes it easier for consumers to spend and for businesses to expand and hire new workers. The flipside is that higher interest rates and tighter money supply can make hiring less likely. That’s one of the reasons the Fed has been so hesitant to raise rates in recent years, and there’s a risk that a too-early rate hike will cut off job growth."

Overall the continued growth is a good sign for the economy and it is likely we will start to see interest rates increase in September. Most of the indicators for the U.S. economy are showing good signs.

Are We Headed for Another Recession?

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The Dow Jones Industrial Average(DOW) plummeted more than 1,000 points Monday morning. This fall in the stock market affected millions of Americans’ retirement plans, and many had fears of a recession returning. While stocks regained some of their lost ground by Monday afternoon, continued uncertainty over the global economy could have further impact.

The DOW is an indicator of U.S. industrial strength. It is one of the most watched stock indexes in the world, containing many massive companies like General Electric, Microsoft, Coca-Cola, and Exxon.

This all started with concerns over slowing growth in China's economy. China is the world's second-biggest economy. For two decades the country has seen explosive growth which has been the engine for the global economy. Their government is deep in debt from massive infrastructure growth. The country’s national debt rose from $7 trillion in 2007 to $28 trillion by mid-2014.

As their economy slows, their need for materials from other countries slows, and the effects can be felt world wide. There are many concerns that this could lead to a recession. A recession is considered two quarters of negative economic growth in a row. Historically we have seen a recession about once every five years since World War II. This window of time has lengthened, though, in the past couple of decades as times of growth have lasted longer due to the strengthened ability for the global economy to take a hit.

So are we now headed into the next recession? Well that depends on who you listen to. Most analysts are referring to the recent dip in the stock market as a market correction. Many people believe that the stock market's prices were inflated, meaning they cost more than they were actually worth, and that a correction like we saw yesterday was very necessary for the long term stability and strength of the stock market.

Some however look at the news coming from China as another signal of a stagnating economy that may fall back into a recession. In the U.S. wages have stagnated for years, and there are concerns over the direction of the future of the economy.

The reason most analysts aren't concerned over a major economic downturn is that the U.S. Economy has been gaining strength, especially in the energy sector where the U.S. has recently become the top oil and natural gas producer in the world.

Others point to new innovation with companies like Apple and Tesla to fuel new economic growth in the U.S. The bottom line is, though the market dipped, the economy is most likely not heading for a recession this year.