Increase in Unemployment Rate Good News

We’re at an odd time in the economic cycle. The unemployment rate rose from 9.7% to 9.9%. Normally an increase in the unemployment rate would be bad news. But in this case it is not.

The reason is the economy created 290,000 jobs in April, its strongest showing since prior to the recession. The government also revised up the amount of jobs added in March to 230,000 from the originally reported 162,000.

The unemployment rate increased because the labor force increased by 805,000 in April. The Bureau of Labor Statistics (BLS) considers the labor force to include everybody who either has a job or is looking for one. So if you lose your job and start looking for another one, you are unemployed but still in the workforce.

But if you aren’t actively looking for work, the BLS no longer considers you in the workforce and you don’t count towards the official unemployment rate. Instead, you are counted as a “discouraged worker” and included in broader unemployment measures.

The good news is a growing labor force means more people are getting jobs and discouraged workers, seeing more employment opportunities, are re-entering the workforce by starting to look for jobs.

Despite this week’s turmoil in the global financial markets, the real economy (the one that produces goods and services) continues to improve. We are still optimistic that the recovery will continue to gain strength and small businesses will increasingly benefit.

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