This week were were all pleased to learn that the unemployment rate plunged to 9% from 9.4%. If the unemployment rate continues to fall at a similar pace for another year or so, the economy will be in unequivocal good shape. However, the unemployment rate value over the short term is often difficult to interpret. It represents the fraction of people of people who are actively, but unsuccessfully, looking for work. Discouraged workers are not counted.
If fewer people are looking for work the unemployment rate could go down, but that would still not be a positive economic indicator. On the other hand, if people perceive that more jobs are available and flood into the market, this could be a good sign even if the unemployment rate rises temporarily. This last month, total employment did not rise very much, while the increase in people looking for work was anemic.
Rather than the unemployment rate, It is less ambiguous to look at total employment. The graph below from the Bureau of Economic Statistic is a time history of total nonfarm payroll employment. Although, there are other jobs besides payroll jobs, payroll jobs are easy to count and good proxy for all employment. The gaph shows that the number of jobs is at least not dropping as fast as before, but it still seems to be bouncing on what we hope is the bottom. To see where the economy is going, keep an eye on total employment not the unemployment rate.
