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February 4, 2011

HMM: UNEMPLOYMENT FALLS BUT WITHOUT NEW JOBS: “The unemployment rate dropped sharply last month to 9 percent, the lowest level in nearly two years. But the economy generated only 36,000 net new jobs, the fewest in four months.” Does this mean that most of the “fall” came from discouraged workers dropping out of the workforce? That would explain the difference between this and the Gallup survey, which showed unemployment rising to 9.8% instead of falling. Or am I missing something?

UPDATE: Reader Michael Rulle writes:

Hi Glenn—we go through this every time the economy is making a major shift. The household survey, which reports the 9% unemployment rate, and the business survey which counts jobs are most out of whack during large changes in employment. As the name implies, the household survey polls people (its typically a sample size of 10,000 or so last I looked). What it captures that the business survey does not (the latter tries to count every job from existing employers—in my opinion a far more difficult task than sampling) is the creation of new entities and small businesses and the people they hire. For example, I hired 2 people last month. In sampling that could only be captured by the Household survey, not the Business Survey. The Household Survey leads the Business Survey. Jobs are coming back, along with record corporate earnings and tax collections. While I oppose Obama policies almost 100%, they have still not demonstrated to be sufficient (yet) to stop the American machine.

On the other hand, reader Neil Blaney says that the labor-force participation rate is the key:

Its plunging. So “9% unemployment” is so meaningless at this point. I’m surprised it’s reported at all. Also note that U-6 (generally referred to as the ‘real’ unemployment rate) jumped to 17.3 from 16.6 in dec 2010.

So are the books being cooked? I dunno. But this labor-force participation rate chart does look like it’s plunging.

Stay tuned.

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