Jobs up, joblessness up: How can that be? One explanation

The jobs report is out, and the numbers are in. The U.S. added 280,000 jobs in May, and while the unemployment rate rose a tenth of a percent to settle at 5.5 percent, the government reported it as essentially unchanged. In general, then, May seemed a pretty happy month for the U.S. economy.

Considering that we added so many jobs, you might wonder how the unemployment rate went up. One answer is that these figures came from the two separate surveys conducted by the Bureau of Labor Statistics—the household survey that asks people their employment status, and the so-called “establishment survey” sent out to businesses, asking how many jobs they created that month. With different surveys, you’re likely to get different numbers. Indeed, some months, the surveys even conflict. As we usually say on this page, don’t rely too much on the data from any given month.

But there is a way to reconcile May’s numbers. The civilian labor force increased in May by a surprising 400,000—a reversal of the past three months and hardly what we’ve come to expect, given that 10,000 baby boomers are hitting age 65 (and age 66, for that matter), and many of them have been retiring from the workforce.

Now, there are a few reasons why the workforce could have increased. First: new working age people entering the country and workforce. (The US working age population increases at a rate of about 200,000 a month.)

And second, perhaps people who had dropped out of the workforce entirely are now encouraged by an improving economy and have decided, at long last, to look for jobs once again. In support of this conjecture, the number of people who weren’t considered part of the labor force but say they want a job dropped by a reported 200,000 in May. Where did they go? One possibility is that those 200,000 moved into the labor force.

The only problem would be that they haven’t found jobs yet. And as a result, they are now for the first time being counted as unemployed. (Remember: The Bureau of Labor Statistics only considers people to be officially unemployed if they’re not working and have not looked for a job in the past four weeks).

By that logic, the fact that the unemployment rate went up is a good thing. It would suggest people are notably more jazzed about the economy and have more hope that they will find employment.

Making Sen$e’s Solman Scale, which takes into account all discouraged workers who have dropped out of the workforce, no matter how long it’s been since they looked for work, and those working part time for economic reasons, reflects the jazzed hypothesis. While the official unemployment rate rose, our U-7 decreased—from 13.05 percent to 13.01 percent.

Another major marker of economic health is wages and again, accentuating the positive, average hourly earnings showed an increase of 8 cents in May, landing at $24.96. Over the past year, the average hourly wage has increased by 2.3 percent. It’s important, however, to adjust this increase for inflation. If inflation is rising at the same rate, 2.3 percent would represent no real increase at all.

When we look at the current inflation rate, however, we find that it was -0.2 percent over the past year. Slight deflation, that is. So the dollar buys .2 percent more than it did a year ago. Add the .2 to the 2.3 percent increase of average hourly earnings, and you get 2.5 percent, a reasonably healthy annual wage gain.

This wage gain could be a result of recent minimum wage campaigns throughout the country. But numbers like these are never definitive.

For example, the average doesn’t take into account where those wage gains were made. If relatively well-paid managers received raises in May, then those wage gains would have averaged out with those making minimum wage. The result would mask rising inequality.

Other economists have different conclusions about this increase in average hourly earnings. Republican economist Douglas Holtz-Eakin of the American Action Forum suggests that minimum wage hikes might be having adverse affects on teen employment:

The anomalous result was a jump up in teen unemployment from 17.1 to 17.9 percent—get ready for stories about the impact of minimum wage hikes.

And Diane Swonk, chief economist at Mesirow Financial, seconded that sentiment:

Alright, so teen unemployment rose. But besides that, everything looks good, right? If only it were that simple. On May 27, The Federal Reserve Board released its own latest survey on the financial and economic conditions of American households, and it put a damper on all this talk of recovery:

The survey results reveal a lack of economic preparedness among many adults. Only 53 percent of respondents indicate that they could cover a hypothetical emergency expense costing $400 without selling something or borrowing money. Thirty-one percent of respondents report going without some form of medical care in the past year because they could not afford it.

It’s still a bumpy ride.