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Misleading unemployment numbers...

The US government, through the Bureau of Labor Statistics - BLS, publishes monthly employment and unemployment data.  The media is often overly interested in the unemployment number.  This can be very misleading.  Here is why:


The BLS employment data includes the following  three categories (non-farm payroll):
 
Employed (have a job)
Unemployed (jobless AND looking for a job AND available for work)
Not in labor force (neither employed or unemployed)
 

As people quit looking for employment, they fall out of the 'unemployed' category and into the 'not in labor force' category.  As this happens, the unemployed number decreases on paper.  
Looking at the most recent numbers, which came out last Friday, the unemployment number did drop.  However, as per the unemployment definition used by the government, this is because one or more of the three reasons listed previously no longer applies (jobless, looking for a job, and available for work).  Obviously, if the unemployed found a job, the employment number would be higher month over month.  It is not. Employment in June was 140.196 million and in July it was 140.041 million.  There are 150 thousand fewer people working month over month.  Sure, the unemployment number looks better (improved from 14.7 million to 14.4 million) but that is not because these people now have jobs.  It is because they are no longer looking for work.  
 
The government can report the unemployment numbers however they want to, but the important number is how many people are employed.  This number is continuing to decrease, and as it does, spending will continue to slow, more people will default on their debt payments, tax income will decrease, etc., etc., blah blah blah. 
 
 
Summary:
While the media reported an improvement/drop in unemployment from June 2009 to July 2009, further analysis shows a net loss of 150 thousand jobs in this time frame.
The reason for the improved number, is that as the unemployed stop looking for work, they fall out of the 'unemployed' category and into the 'not in labor force' category, resulting in a misleading drop in the unemployment figure. 
Contrary to the media headlines, the month to month labor situation continues to worsen.


Disclosure:  No stocks mentioned in this article.