Digging Into The Numbers Behind the Dropping Unemployment Rate

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Glancing at the headlines, it would seem like the U.S. employment market is improving. After all, the economy added nearly 170,000 jobs and the official unemployment rate dropped to 7.3 percent in August. While there might be some reasons to celebrate, however, digging deeper into the numbers suggests that the employment situation is more dire than it appears.

Digging Into The Numbers Behind the Dropping Unemployment Rate

What many articles are failing to detail is that only 63.2 percent of people are actively engaged in the labor market. This means that only 63.2 percent of people are either employed or actively looking for full-time employment. This actually represents a drop from a participation rate of 63.4 percent in July, suggesting that more and more people are simply giving up on the job hunt. This represents the lowest participation in the labor force since 1978.

Furthermore, the U-6 unemployment rate, which many analysts feel is the best actual indicator of economic performance, has remained largely unchanged through 2013. The U-6 rates include people who are marginally attached to the workforce, as well as those who are completely unemployed. This means all people who are looking for jobs, as well as those working part-time but seeking full-time work, are counted in the U-6 unemployment rate.

Throughout 2013 the U-6 rate has bounced from between 14.7 percent to 13.6 percent, and currently weighs in at 13.7 percent. This represents a marginal improvement from 14.0 percent in July 2013. Still, with so many people remaining underemployed, it’s hard to get excited over the drop in the traditionally cited U-3 unemployment rate. Underemployment means that people will still be struggling to get by and to pay their bills. This will have effects on discretionary income levels, which in turn will effect consumer spending and housing prices.

While the unemployment numbers may not be as good as they first appear, consumer spending might be becoming a bright spot. Gallup pole found that self-reported consumer spending is at its highest levels in over four years. While during the recession, spending remained below 80 dollars per day, it has now surged to 95 dollars. Further, auto sales and big ticket items have been selling in high volumes. Consumer spending is normally viewed as vital because it represents about 70 percent of economic activity in the United States and other developed countries.

Still, critics might wonder if the rise in spending is simply linked to a rise in prices. The U.S. inflation rate hit 2 percent with the Department of Labor reporting that housing, food, and clothing costs all rose. Fuel prices also remain high, and many might wonder if consumer spending is rising simply because costs themselves are rising. With the unemployment rate remaining high and wages stagnant, its difficult to pin-point exactly where growth could be coming from.

While the United States economy may have stabilized, or bottomed out, it remains less certain that the economy is actually enjoying a sustained recovery. Instead, a stagnant job market, moderate inflation, and tepid consumer spending suggests that the economy could simply be holding ground. And if conditions do not begin to actually improve, there is a possibility that businesses and consumers alike will start to lose faith. This could actually cause the economy to reverse and decline, if nothing else.

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