How can the unemployment rate fall when job losses go up?

Matt Slocum/AP
Job hunters waited in line to meet with recruiters at a job fair in Philadelphia earlier this month.

In some states, the labor market is stabilizing, the Department of Labor reported Friday. Eight states have seen their unemployment rate drop by at least 0.2 percentage points over the past two months. North Carolina and Vermont are on a three-month streak.

Time to party in Raleigh and Montpelier? Music? Noisemakers?

Not yet. Not in Raleigh, anyway. North Carolina's falling unemployment rate disguises job losses still afoot in the state. But the Tarheel State tells a good story about how misleading unemployment rates can be in times of economic distress.

Ever wonder why more workers can lose their jobs but the unemployment rate goes down? Or the number of jobs rises but journalists like me report – with a straight face – that the unemployment rate went up?

Let North Carolina and Vermont explain.

Tarheel blues

On the face of things, the Tarheel State is heading in the right direction. After reaching record 11.1 percent unemployment in May, its jobless rate fell to 10.8 percent by August. But 47,000 people left its labor force during that time, many of them because they quit or were laid off and they either moved away or stopped looking actively for a job.

Drop thousands of people from your unemployment rolls – North Carolina lost 18,000 during that period – and suddenly your unemployment rate improves, even if you add no new jobs. North Carolina actually lost 28,500 jobs between May and August and its unemployment rate still went down. (To further confuse things, state unemployment rates and job-loss data come from separate Labor Department surveys that don't always agree.)

The view from green mountains

Contrast that messy picture with Vermont. Its labor force lost a scant 2,000 people from May to August. It managed to add 100 jobs during that period. That's not great growth, but it makes the fall in Vermont's unemployment rate from 7.4 percent to 6.8 percent look more solid.

Even in the Green Mountain State, the outlook isn't as sunny as it seems, says Andy Condon, director of labor market information at the Vermont Department of Labor. Federal stimulus money funded a summer employment program for 1,000 to 1,500 youths. Even though the data are seasonally adjusted, that's a huge jump in a small state like Vermont.

So come next month when all those youths go back to school, the state's unemployment rate could bump back up, he warns. Still, "anecdotally, we're hearing equal amounts of good news as well as bad." IBM is adding 240 jobs to its Essex Junction plant, for example. "Things are stabilizing," he says.

So next time someone touts a falling unemployment rate in the shadow of a recession, ask about the number of jobs gained. That will give a truer picture of what's really going on.
– OK, you can break out one noisemaker – one! – to celebrate with Montpelier. Or Twitter us instead.

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