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The Unemployment Rate Drop in August is Illusory

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There are lies, damn lies and statistics. Never was this more true than with the report of a decline in the unemployment rate to 8.1 percent in August. The drop was entirely due to a massive 368,000 slide in the labor force-the number of folks looking for work. The number of people reporting themselves as working in August actually fell by 119,000. So, in this world of the monthly Household survey’s strange accounting, the unemployed number tumbled by just under 250,000. Hence, the unemployment rate, the ratio of unemployed to the labor force went down. Pure fiction as it relates to what is happening to the labor market.

And if one is looking for solace in the Establishment survey report-forget about it. Payroll jobs rose a scant 96,000, less than half the monthly increase in the civilian non-institutional population of labor market age. Jobs fell in manufacturing and mining suggesting the goods producing sector has run out of upward momentum. Jobs in the temporary help category also dropped, a negative omen for future hiring of permanent workers. Hiring in the professional and business service group slowed to half the rate of growth in previous months, also an indication of a substantially weakened job market.

Watch for the Fed to jump in with more monetary policy stimulus efforts. Which will amount to nothing more than pushing on string in the face of the fiscal calamity and regulatory nightmare facing the nation.

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