An explanation for the surprising 9.0% unemployment rate estimate

The Labor Department released a new unemployment estimate today, dropping from 9.8% to 9.0% in just two months.  Sounds like great news!

The Wall Street Journals says the data involved in the calculation was off last year, has been newly revised in January using 2010 Census data, and has been some what tortured resulting in an estimate that some say is not useful without looking at all the other related data. Bummer. Unemployment might be better or not as good as it looks. Hard to say, they suggest, without considering all the data.

See Messy New Estimates Complicate Explanation for Unemployment Rate Drop – Real Time Economics – WSJ.

Another explanation is that due to how the surveys are conducted, they tend to be wrong when the economy is changing rapidly. It is possible that many jobs have indeed just been created but are not yet reflected in each of the surveys.

Chart of the labor force participation rate shows that many people are leaving the work force. In the last 12 months, the participation rate is falling at a rapid rate.  If – or when – they choose to again look for work, the unemployment rate might unexpectedly rise.

Washington State’s monthly report – for January – will not be released until March 1st and March 8th. The February report will be released on March 15th.

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