Unemployment Measures
While the state of the economy is prone to inaccurate projections, there are a number of economic indicators that economists use to help measure trends and predict where the economy is headed. These indicators include the unemployment rate, GDP growth, and the inflation rate, among many others. Each indicator may also have an effect on the other indicators, making it especially difficult to interpret their meaning.
Unemployment has one of the most direct impacts on US residents, causing concern when it rises and a sense of relief when it drops. Like all indicators, however, the unemployment rate can be misleading if you don’t know exactly what it measures.
The unemployment rate measures the percentage of the population of working age that is actively looking for employment and cannot find it. What unemployment does not measure, however, are those who are not employed but have given up looking for work. Therefore, the unemployment rate is a particularly inadequate measure after long periods of economic malaise because more people have given up their job search. In these times, the unemployment rate may drop, misleading people into the assumption that employment has increased, but rather, many of those who were previously seeking employment have given up their search.
A more comprehensive measure of the state of employment is the U-6 unemployment rate. Rather than excluding those who have given up searching for employment, the U-6 unemployment rate measures all those who wish to be employed and are not, whether or not they are actively searching, as well as those who are marginally employed, not making enough to support themselves.
Because a smaller portion of those who are not employed are counted in the unemployment rate, it is consistently lower than the U-6 unemployment rate. In the past year, unemployment has ranged from 3.4% in January and April of 2023 to 3.8% spike in August of 2023, while the U-6 unemployment rate has ranged from 6.5% in December of 2022 to 7.1% in August of 2023, coinciding with the spike recorded in the unemployment rate.
This follows relatively low measures of joblessness in the prior month of July. In the official White House blog, it was noted that this increase in unemployment came despite an additional 187k jobs being added to the in August. This net positive of jobs gained compared to jobs lost indicates that the increase is likely due to an increase in those actively seeking employment.
Both the unemployment rate and the U-6 unemployment rate are trailing indicators, meaning that they show us statistics that record past data–i.e. prior months. But they can still be used to help predict the future. The White House boasts that the unemployment rate has remained below 4% for well over a year and claims that these fluctuations are to be expected for a steadying economy.
If more people are in fact now searching for employment than they had in previous months, this may indicate a higher national confidence in the economy, which could lead to an increase in consumer spending and create more economic stimulus. One can hope that this confidence is not shaken by the initially alarming number value of the most recent unemployment rate.
