The latest Employment Report shows the slowest jobs growth so far this year, at only 194,000 jobs added, which is a bit more than half the job growth of the prior month and less than most economists expected. Asking why a certain economic statistic is lower than economists expected is just another way of asking why economists’ expectations were higher than reality. Why did economists think more people would be going back to work than actually did? And a related question is, why does this new report show job growth slowed but unemployment fell dramatically?
The answer to both questions lies in understanding how the government defines unemployment. “Unemployed” means looking for a job, but not having a job. Therefore, there are two ways to leave the statistical category known as “unemployed:” you can either get a job, or you can stop looking for one. The unemployment number is neutral on those two options. If a lot of people who are looking for work get work, unemployment drops. Likewise, if a lot of people who are looking for work give up and stop looking, they are seen as leaving the workforce, and again, unemployment drops.