The other piece of economic news that appears to have cheered financial markets today is information that US unemployment has fallen from 9% to 8.6% with 120,000 new jobs being created in November, which has been interpreted as a sign of a strengthening of the economic recovery in the US.

Alas these figures do not mean what they appear to mean.  Whilst 120,000 jobs were indeed created in November the reason for the decline in the unemployment totals appears to be largely statistical.  US unemployment figures measure the number of people who are unemployed and looking for work.  It seems that the major reason for the seeming improvement in the unemployment figures is that 315,000 people who were previously looking for work in November stopped doing so.  If they stopped doing so because they have given up hope of finding work then the latest figures may actually be pointing to a deteriorating picture.  It seems that such a sharp fall in the number of people looking for work is very unusual, which suggests that the more pessimistic interpretation may by the correct one.  If so the financial markets have misunderstood the figures and have been cheered by figures that are actually turning bad.

I understand that the US Department of Labor, which publishes the US’s unemployment figures actually publishes another set of figures, which attempts to show the proportion of the total available workforce, which is not working.  These figures, which on the face of it seem more accurate, suggest that the true rate of unemployment in the US is actually  around 15%.  I have even read somewhere that if unemployment today were calculated in the way that it was in the 1930s it would come to around 25% or a quarter of the workfrorce, roughty what it was at the height of the Depression.  That may be going too far.  Differences in the labour market between then and now are so great that such comparisons seem to me dubious.


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