Friday, February 5, 2010

Unemployment Drops to 9.7% Here's the REAL story!

What's going on with the economy?

Move people are losing their jobs, but the government is interpreting it in a way that misleads people. The government admits that we lost at least 20,000 jobs in January 2010 and yet the unemployment rate dropped from 10% to 9.7%.

How is this?

Let me break it down in a way that everyone can understand.

There's an imaginary country.

The Republic of Centonia.
Population: 100

Now, if you exclude the elderly and youth, you have 60 workers participating in the economy. If you have 20 people who are not working. Under normal circumstances, the unemployment rate will be 33.3%.


There are 20 unemployed workers for every 60 participants.
20/60= .333
You convert .333 to 33.3%

If five unemployed workers stop looking for work. The Centonian government can do what the U.S. government does and simply declare that they are not apart of the workforce.

That means you subtract the 5 from the participant group and and the unemployed group.
60-5= 55 people participating in the economy
20-5= 15 people counted as unemployed.

That means 15 out of 55.

15/55= .272
Which gives us Centonia a lower unemployment rate of 27.2%.

So you have the same situation. 100 citizens. 20 people not working. But if you remove the discouraged workers from the unemployment count, you get a lower rate.

Same amount of people not working. Better number.

27.2% sounds better than 33.3%.

The U6 rate dropped, too. But you have to keep in mind that when people lose their unemployment benefits, they are not necessarily counted for the U6.

Bottom line: We're losing jobs and the unemployment rate is not showing that.

1 comment:

  1. Reginald the reason why it dropped was because they did a HUGE seasonal adjustment. The NONadjusted number actually hit a new high on U3 and U6, 10.6 and 18 percent respectively.

    Also trimtabs is showing a -250 for november (not the positive number bls is stating) and a -100,000 for this january (not the -20,000 from BLS). Trimtabs has been shown to be very accurate as revisions from the BLS come down years later. It takes like 2 1/2 years for full revisions to be completed from the BLS. So I think for now Im going to look at the trimtabs number first.