Wes Moss: The truth behind our unemployment rate

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Now that the Olympics are over, Americans can forget about medal counts and get back to obsessing on another number: the nation’s monthly unemployment rate.

The U.S. economy added 163,000 “net new” jobs during July, the 22nd consecutive month of job gains. Sounds like a good employment report, right? That depends on whom you ask.

President Barack Obama pointed to the new jobs and 22 months of employment growth and declared July to be a good month. But GOP challenger Mitt Romney disagreed. His argument: During July the unemployment rate actually rose to 8.3 percent.

How can that be? Simple math. The unemployment rate is calculated as a ratio. There are about 155 million people in the labor force, 13 million of whom are looking for jobs. Thus, 13 million divided by 155 million equals 8.3 percent.

If a significant number of people stop looking for work, as happened in July, the labor force shrinks, and the rate of unemployment is pushed up. For example, if no jobs are lost in August, but 1 million people quit their job searches, the unemployment rate will increase again to 8.4 percent: 13 million divided by 154 million equals 8.4 percent

Oddly, an improving job market can actually result in a higher unemployment rate, at least in the short term. If people start to feel better about the economy and resume their jobs search, but don’t immediately find work, both the labor force and the number of unemployed would grow. The resulting math? The unemployment rate would go up.

Look at the bigger picture

So don’t let a one-time dip, or a one-time rise, in the unemployment rate fool you. This one is better judged as part of a trend.

I hope this quick primer on unemployment stats helps you sort through all candidates’ claims and counterclaims during this election season — and serves as a reminder not to take those claims and counterclaims at face value.

But it also begs the question of how much a role should the unemployment rate play when discussing the economic health of the nation?

What other indicators do you think are more, or less, important?

– Wes Moss, for Atlanta Bargain Hunter

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40 comments Add your comment

Steve

August 13th, 2012
7:08 am

People also like to forget the amount of cuts to the public sector under Obama, which is a major drag on the numbers.

the red herring

August 13th, 2012
8:23 am

they also forget it was never supposed to reach this high due to all the stimulus money that was given away by the obama administration. then add in the bailouts for which all of us taxpayers are still on the hook for. what happens to the unemployment rate when benefits (call them freebies if you will) get cut—amazingly enough more people realize “if i’m going to eat then i’m gonna have to find work”. pretty simple. in no way would i encourage letting the sick and elderly go hungry, without care, etc but for those people that thinks the government owes them a living the wake up call is coming. we are broke and headed towards bankruptcy unless we cut out the overspending.

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Independent voter

August 13th, 2012
10:36 am

just look at younger folks, 20 somethings with student loan debt, women and minorities…. most who voted for hope and change… their unemployment is close to 20%.. how could they vote for 4 more years of this..

Traci

August 13th, 2012
10:38 am

All I want is an interview so I can have a shot at a job. I have been out of work for months, and I have had my resume reviewed, taken a class to brush up on my software skills, and applied to whatever I think I can do, even willing to start at the bottom again. I have a college degree in business admin and over 15 years exp., but it does not seem to mean anything to anyone.
I have been told that any job should do-but it’s hard to get just any job when you cannot get an interview.

yard man

August 13th, 2012
10:44 am

what about the Occupy Wall Street protesters ??? Stock market is going UP…CEO’s and Rich folks are doing great under Obama… but he campaigns on class warfare !! My standard of living is going down as gas prices, food prices are way up !! no Hope and little Change left !!

yard man

August 13th, 2012
10:47 am

Traci.. my wife is making over $40 k/year waiting tables at OutBack Steak House less than 40 hr’s per week

Destin Dawg

August 13th, 2012
10:52 am

the TRUTH behind our unemployment rate ?? It’s really about 15% or more counting under employed, temps, or just plain quit looking.. only thing up is disability claims !!

Traci

August 13th, 2012
11:11 am

Yard man, restaurants want experienced waitresses, not women in thier 40’s with no table waiting exp.

jackie

August 13th, 2012
12:06 pm

Traci, it sounds like you are making an excuse in order to avoid having to do something you consider menial and not glamourous like, wait tables.

Ronin

August 13th, 2012
12:10 pm

Actually, the government shouldn’t care what the unemployment rate is, except for the fact that it is a gauge of how many people are collecting benefits from government aid programs. With fewer people working (8.3 to 15%), there are fewer income tax dollars going to fund social and government spending programs. There are the same number of dollars in the economy, however, there are fewer transactions that are taxable.

Fifty years ago, it wasn’t uncommon for only one person to work to support a family of four or more. However, there was far less consumption of goods. In today’s stock market driven economy, EVERYONE, needs to be employed to keep the stock prices/consumption stable and government spending afloat.

If people start saving 50% of what they make, you’ll see the stock market collapse, due to lack of product consumption.

Traci

August 13th, 2012
12:15 pm

No, not an excuse, the ads I see for wait table jobs ask for experience, and an ad I saw today even asked for a photo with the resume. I have a lot of respect for those that work in the restaurant biz-it’s hard work. (and no, I am not afraid of hard work-I have worked holidays, weekends and late in the past-sacrificing my life to stay employed).

jackie

August 13th, 2012
12:20 pm

Traci, just because the ads ask for experience doesn’t mean that you can’t try and impress the employer into taking a chance on you.

Traci

August 13th, 2012
12:28 pm

I have tried that and have gotten nowhere. I just keep applying and hoping someone will at least talk to me.

Guest

August 13th, 2012
1:24 pm

“People also like to forget the amount of cuts to the public sector under Obama, which is a major drag on the numbers.”

And the same people who demanded cuts to government spending won’t hesitate to criticize Obama when said cuts raise the unemployment rate.

Bernie

August 13th, 2012
1:28 pm

I Laugh OUT LOUD! When I See Declarations of the word T-R-U-T-H can be found here. That premise alone certainly needs to be questioned, especially when you see WHO that declaration comes from and COMPARED to what data and information. One thing I am sure and certain of is that “THE TRUTH” certainly, cannot be found here!

Granted that the decrease in the unemployment rate and Job Creation is nowhere near it should be or expected to be at this time. However, it is a far cry better than the free fall of LOSS OF JOBS and NON EXISTENT JOB creation the entire year of 2008 and preceding 7 years! Mind you the peak Job loss during those periods were in excess of 800,000 a month….and the Job creation was far less than what it has been in the past 3years!

The Guy who reversed that process, should be given benefit, in light of the fact through his efforts, the previous fast declining free fall was stopped and reversed.

If for one minute, you think that the GUY who has spent his entire business career, developing a extremely successful business MODEL around liquidating businesses and its assets to increase his own personal wealth. Now to expect that same BUSINESS MAN wants you to believe that he is able to change on a dime, and says that he will and can reverse that same behavior to create and build successful national business MODELS.

If you believe that sales pitch then, I have a bridge in NEW YORK, you may be interested in buying for a very high lucrative return!

There is No Comparison, only a shocking visible difference between the two candidates!

In response to the comments from Steve @7:08 am – They are far from the Truth as Mars is from the earth! what he is really not saying, Just wait until the ROMNEY & RYAN Cuts are more defined and presented. YOU will SEE CUTS like never before! The claims of the U.S. being like GREECE, will certainly be upon us in the blink of an EYE! after that ill advised decision. Austerity is what brought the second dip of decline that Great Britain and others European Nations are presently in the midst of this very moment that the U.S. has managed to avoid even, as to the time, I post this comment.

Heather

August 13th, 2012
2:12 pm

Those of you saying to apply for jobs without the qualifications listed as being required have obviously never had to do any hiring. Those of us that have ask that you PLEASE PLEASE PLEASE only apply if you have the skills we’re looking for. Hiring is so much more daunting when out of 500 applicants, only 25 have the requested skill set. None of those without it dazzled me – they immediately went into the “can’t follow simple instructions and requests” pile. Also known as, no chance in hell of them getting a job with us.

Destin Dawg

August 13th, 2012
2:24 pm

Bernie FACT CHECK : 80 % of Bain ’s businesses were reorganized, with PRIVATE capital, NOT liquidated… and are now viable or growing and employing more workers… they Include : AMC Ent., Burger King, Burlington Coat Factory, Dominos, Dunken Donuts, Guitar Center , Staples, Toys R US, Warren Music, on and on…. Profits went to Pension plans, college endowments, not Romney… Obama bailed out Solyndra, Ener 1, Beacon Power, Eastern Energy, Abound sales, Spectra Watt., Amonix Solar, ALL were Obama contributors, ALL went BANKRUPT, BILLIONS OF TAXPAYER $$$$ Lost gone forever !!!

Independent voter

August 13th, 2012
2:39 pm

BERNIE… Facts please.. the latest of Bain’s companies that was recapitalized just went public… Bloomin’ Brands… ( OutBack Steakhouse, Carrabba’s. Bone fish grill ) CEO was just on CNBC… said Bain and Romney was great to work with and get the company reenergized.

Destin Dawg

August 13th, 2012
2:45 pm

BERNIE…… in order to SAVE medicare and Social Security , we have to make some cuts while we still can, after 2020, we’re broke and out of control, too Late then

Blog Administrator

August 13th, 2012
2:54 pm

Folks, let’s please get out of the weeds of politics and back to discussing the unemployment rate:

– How much a role should the unemployment rate play when discussing the economic health of the nation?

– What other indicators do you think are more, or less, important?

Bernie

August 13th, 2012
3:25 pm

The current methodology used to determine the unemployment rate skews the true and real unemployment rate, therefore inhibits the reliance on accurate data presented to evaluate the true health of the economy. Using that method can only be relied up as one of many other factors to evaluate our current economic position.

Consumer spending is one the best and most accurate indicators that can be relied upon as guide when considering this issue. However I am the opinion of more expansion of the consumer spending data to provide a better idea as to where in the economy those increases or decreases are occurring.

Clewis564

August 13th, 2012
3:26 pm

I know what you mean traci. When I had layoffs in the past I went to bookstores, libraries, best buy, circuit city and applied. It’s not as easy as people think it is to get hired at places like that. They know that you have a degree and are looking for a job so why hire you cause if you find a job in your field you’re gone. People that haven’t been through it don’t understand. People with something always can tell people without it how “easy it is” to get hired or “What you won’t do”.

Also, I have found people with jobs are mean to people without them and looking. They drag out hiring for weeks when people have monthly bills to pay and some think they’re better than you cause it hasn’t happened to them….yet. The best question on an interview is so why are you looking for a job or why do you want to work here? “ummm, cause I like to eat and have a roof over my head.”

Bernie

August 13th, 2012
3:42 pm

Interesting to note from previous postins from times 2:24 – 2;25, All of their comments itemized contributing players to reducing the overall unemployment rate. However, at the same time those same employers due to poor offering of ineffective health insurance coverage and significantly lower wages have transferred and contributed those same relevant unemployment related issues to the increase of the FOOD STAMP and MEDICAID programs.

No Scholar

August 13th, 2012
3:47 pm

Lost in the discussion is the fact that so many people have decided to quit looking for work because of the tough economy. If all of the people that would be willing to work (but have simply given up) were to re-enter the work force, the real unemployment rate would be well into the teens.

Ronin

August 13th, 2012
4:14 pm

Blog admin @ 3:04. Unemployment is a more important factor in a credit based economy (like ours) simply due to the fact that most people will live in debt all their lives. Without an income stream (employment) to cover fixed expenses and discretionary spending and the reduction of defined benefit plans, more and more people will be working until they drop.

“– What other indicators do you think are more, or less, important?”
CUTTING GOVERNMENT SPENDING, WHICH WILL INVOLVE A REDUCTION OF GOVERNMENT WORKERS AND ENTITLEMENTS. The U.S. is on economic life support via the China.
Cut government spending to the bone, then keep on cutting.

The income tax needs to be replaced with a consumption tax.

Jack

August 13th, 2012
4:28 pm

Bernie, start a business an hire lotsa folks: That’ll reduce the unemployment rate. And if you don’t mind getting your hands dirty, apply at a hospital or nursing home; maybe at a hotel. They’ll hire you if you can empty a bedpan or clean rooms. That, too, will reduce the unemployment rate. I was a bellhop and a dishwasher while working my way through life; didn’t hurt me all.

Jack

August 13th, 2012
4:29 pm

Bernie

August 13th, 2012
4:50 pm

Jack @ 4:28 pm – You missed the entire point of the article written. are you able to address the reason why we are commenting? obviously your personal comments directed towards me, are a revelation, you do not understand the or unable to comment on the topic at hand hand. which is it, SIR? if either one is not the case…please allow us to hear your informed opinion.

Bernie

August 13th, 2012
4:55 pm

Correction —

Jack @ 4:28 pm – You missed the entire point of the article written. are you able to address the reason why we are commenting? obviously your personal comments directed towards me, are a revelation, you do not understand the subject at hand or unable to comment on the topic at hand. which is the issue of unemployment as it relates to the economy and specifically not related to any specific named individual.

which is it, SIR? if either one is not the case…please allow us to hear your informed opinion.

Jason

August 14th, 2012
7:21 am

I seem to recall a 4.7% unemployment rate called high by the media in 2006 when a Republican was President. Now we are asked by the media if unemployment numbers should play a role in discussing the economic health of the nation. Yes they should.

The Gambler

August 14th, 2012
1:20 pm

I find it hillarious that the Blog Admin would say to get out of the weeds of politics when it is the very politics that have plagued this country. You the media are the biggest part of the problem. I would say between the bankers, media, and politicians you can go choke on a bannana for all I care. First of all BO is not my President he may be the other people’s president(GET DOWN WITH OPP)! The liar in chief promised unemployment would not rise above 8% guess what he lied, and there is not one thing in his policies that have been pro growth. You people are sick and delusional to continue to believe this garbage that he is spewing. There is no recovery….and there may not be one.

Default Settings 2.0

August 14th, 2012
3:40 pm

That’s right. I am tired of the 24/7 365 day a year election cycle and the over exposure and phony theatrics. Voting seems useless.

dino

August 14th, 2012
6:59 pm

I’m working at a crummy job for chump change—I may move back to new jersey next year if nothing picks up here.

Johns Creek CPA

August 16th, 2012
8:35 am

163,000 new jobs is a positive figure. Economists say there are 125,000 new entrants in the job market each month – mainly new graduates from high school and college. At the current rate of job growth, Dr. Albert Niemi (Dean of the Cox School of Business at SMU, formerly with UGA) says it will be 2017 to 2020 before we have absorbed the current unemployment. To make a significant difference, we need to be creating 225,000 or more jobs per month as an economy.

BjohnDawg

August 17th, 2012
1:47 pm

As far as economic indicators…unemployment or employment numbers are the MOST important, as the difference is a large factor in the increase or decrease of the tax base/revenue. Obama gets way to much blame for the unemployment due to three facts: 1) the unemployment was already significant during the end of the Bush Administration, 2) Reps in Congress have been at every vote blocking everything with Obama’s name on it, as a strategy to take back the whitehouse, and 3) the Obama adminstration has made large job reductions in the federal job sector. If you inherit bad unemployment numbers, and you cut federal jobs, you are bound to have continued unemployment. The only thing saving the numbers are the war in Kabul. Because if you end Iraq and Afganistan(spelling) then you have to lay off military personnel, and you have to cut military arms purchases which reduces jobs in that private sector. Do that and the job numbers would really be ugly. So folks lets grow up and put on Big boy and Big girl pants. Stop trying to blame Obama for all the ills in the US including unemployment and student debt ( which starts growing in the 70′z when Barack was a teenager smoking weed at Harvard) . This is a democrat and Republican screw up and both parties have to come together in a bi-partisan way to fix the mess they have cause, or they can keep you their petty games and what it all ( including unemployment numbers) really start to tank.

BjohnDawg

August 17th, 2012
1:49 pm

watch it all really start to tank.

Ole Guy

August 17th, 2012
2:30 pm

Forget not the proliferation of contract employment…once considered a rarity, this type of work is gaining popularity in corp america. While salaries and wages are typically pretty good, (non-participatory) benefit packages are non-existent. Week-to-week/month-to-month income may be great, but may or may not provide adequate annual income. Nonetheless, it IS a reality; one which will probably be the next “wave of the future”.

DownT

August 17th, 2012
5:45 pm

when will barack and joe create jobs like they promised? the economy is worse than ever. I can’t find any good jobs paying decent money.

Destin Dawg

August 18th, 2012
10:11 am

the younger folks, minorities, and women drank the KOOLAID four years ago for HOPE and Change… now they’re unemployment and underemployment is WAY over 20%…. now we really do need Change !!