One-Minute Insights: Unemployment data; what’s in a number?

Employers added 245,000 jobs in November and the national unemployment rate dropped from 6.9 to 6.7 percent, its lowest level since the beginning of the pandemic. But while markets are gaining, this isn’t the reason why. So why aren’t markets and investors as happy about it as the casual reader?

The Insight

The unemployment rate is a good barometer of economic health, consumer spending, and travel intentions, but only when taken as a piece of the data. A decline in unemployment doesn’t necessary directly correlate to the number of people working. Also, the measure is a snapshot, and a single picture doesn’t a movie make, so we need to look over time and understand the underlying math. Here are four basic things about the report that determine how markets view it, and we should too:

1. Did employers hit economists’ projections? At 245,000, the number of jobs created is just over half of the projected 460,000 economists were expecting.
2. How is job creation trending over time? Job creation continues to slow, down from 610,000 in October and well below 1.4 million in August, indicating waning economic recovery – at least for now.
3. Did the denominator change significantly? Over 400,000 ‘discouraged workers’ stopped looking for work in November, meaning that they are no longer counted as ‘unemployed’. This brings down the unemployment rate (good), but the decline is exaggerated (bad), and those folks aren’t actively engaged employed OR unemployed (bad).
4. In terms of raw numbers, what’s the big picture over the long-haul? There are still 9.8 million more people unemployed now than there were at the beginning of the pandemic.

The Takeaway

• While economic data may point in one direction, in this case downward, they’re complex data sets with a lot of moving parts and only represent a snapshot.
• Yes, lower unemployment is a good thing, but seeing the full picture helps you understand how good (or not).

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