A Silver Lining Beneath the Unemployment Report’s Dark Cloud

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CNN anchor Suzanne Malveaux interviews Gazelle Index CEO Danny Boston  regarding the June, 2012 jobs report on unemployment during the month of May. The report showed that the unemployment rate ticked up from 8.1% to 8.2% during the month of May and the economy created only 69,000 jobs. This is disappointing because the number of jobs created was less than one half that which was predicted. Nevertheless, Danny Boston sees a silver lining beneath the dark cloud.

Specifically, during the month of May the civilian labor force increased by over 600,000 workers and more than 400,000 more workers were employed than in the month of April. Workers re-entered the labor market because they were more optimistic about becoming employed. Furthermore, while financial analysts are gnashing their teeth over the higher unemployment rate, This is misplaced anxiety. During an economic recovery it is better to see unemployment rate increasing slightly because large numbers of workers are reentering the labor market, than to see the unemployment decreasing because workers are becoming discouraged and exiting the labor market.

When workers leave the labor market they are no longer counted among the unemployed, which may give the false impression that things are getting better when actually they are not. In contrast, when workers reenter the labor market they are counted; this means the unemployment rate may increase while the new entrants are searching for a job.

Finally, 69,000 new jobs is much smaller than what is required to heal the labor market. But that low number also does not square with the fact that over 600,000 new workers entered the labor market and the unemployment rate went up by only .1%. If the 69,000 were correct, one would expect to see a much higher increase in the unemployment rate. We must wait to see if this picture becomes clearer in the coming months.

See the full interview: CNN Interview with Danny Boston_06-01-2012_12.36.36

Last modified: June 4, 2012

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