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The May jobs report ‘misclassification error’ explained

New numbers from the U.S. Labor Department Friday surprised economists when the jobless rate dropped from 14.7 percent in April to 13.3 percent in May. But there was a note on the official report called a “misclassification error” that makes last month’s unemployment rate up to three points higher. The Wall Street Journal’s chief economics commentator Greg Ip joins Hari Sreenivasan to explain.

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  • Hari Sreenivasan:

    New numbers from the Labor department yesterday surprised economists when the jobless rate dropped from 14.7 % in April to 13.3 % in May.

    Stocks rose and President Trump called reporters to the Rose Garden to announce the unexpected good news even though tens of millions of Americans are still out of work.

    But there was a note on the official report—pointing out a "misclassification error" — an error that makes last month's unemployment rate as much as three points higher.

    The Wall Street Journal's Chief Economics Commentator Greg Ip explained what was wrong with the numbers.

  • Greg Ip:

    So the numbers are a little bit distorted because of the unusual circumstances of the pandemic.

    People who are on temporary layoff are supposed to be classified as unemployed. For reasons that we're not really sure a lot of those people were, in fact, classified as employed.

    Now, the Bureau of Labor Statistics is aware of that problem. They told us that if you adjust for that error, then the unemployment rate is actually higher.

    How much higher? Well, the month of May, it would have been three percentage points higher but in the month of April it would've been five percentage points higher.

    So what do we take from that? Well, unemployment rose a lot more in April than we thought. But it also fell more in May than we thought.

  • Hari Sreenivasan:

    When we talk about numbers like 13 or 16 percent, compare that to where we were just six months ago.

  • Greg Ip:

    I know around, you know, January, February, we were down in the three percent area. Now we're dealing with unemployment rates that are the highest since the Great Depression.

    However, let's put that in context. We had 20 percent unemployment rates for years back in the 1930s. We've only had these double digit unemployment rates for a few months.

    I have to emphasize, we do not have good models for understanding where the economy is going at a time like this. It's just too soon to say how long we'll be dealing with this historic level of unemployment.

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