Unemployment Rate Up: Why That’s Good News



photo by John and Keturah 

This article is provided by Learning Markets.

The unemployment rate in the United States rose from 9.7% in March to 9.9% in April. However, the Bureau of Labor Statistics also announced that the economy created 290,000 new jobs in April.

How does that work? How is it possible to add jobs to the economy but still see the unemployment rate rise? And what does that mean for your investments?

Though it may seem like a contradiction, the unemployment rate can rise at the same time the economy is adding new jobs because of the way the government calculates the official unemployment rate. The government does not account for people who are not actively looking for work when it determines its official unemployment rate. (For an in-depth look at how various agencies compile and report unemployment statistics, read The Truth Behind Unemployment Reports.)

During the great recession, there were plenty of people who lost their jobs and got so discouraged that they stopped even trying to look for a new one. This caused them to stop being counted in the official unemployment numbers. But now that the economy looks like it is starting to pick back up, these people are regaining some confidence and are starting to actively look for work again—which means they are being counted again.

The numbers are telling us that the economy is starting to pick back up and 290,000 jobs were added last month. They are also telling us that there were more than 290,000 people who were not actively looking for work a month ago because they were so discouraged — but who now are confident enough to start looking again.

While the official unemployment rate may be moving higher, it is actually a good sign for the economy in this case. Hopefully this trend continues.

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