Tags: jobless | employment | economy | labor

Why Drop in Jobless Rate Is Bad Sign for Economy

Friday, 07 September 2012 10:52 PM

The U.S. unemployment rate fell in August but that was actually bad news for the economy because the drop was driven by hundreds of thousands of workers flooding out of the labor force.

The Labor Department said on Friday the jobless rate fell to 8.1 percent last month from 8.3 percent in July.

The government's survey of employers showed hiring slowed sharply during the month to 96,000, down from a revised 141,000 in July and well below the 125,000 median forecast in a Reuters poll.

Following are some key details from the report:

• The unemployment rate, which is derived from a separate survey of households, fell because the workforce shrank by 368,000 during the month. That is worrisome because some of the outflow was likely caused by people giving up on their job hunts. To be in the workforce, a worker must be either employed or seeking work. The participation rate, a measure of the amount of people employed compared to the size of the workforce, fell to 63.5 percent in August - the lowest since September 1981 - from 63.7 percent a month earlier.

• A big drag on hiring came from the manufacturing sector, where payrolls dropped by 15,000. Long a major support for the recovery from recession, factories now appear to be sagging as the global economy cools.

• Temporary hiring also held back the gain in payrolls, falling by 4,900 last month. Companies often hire temps to test the waters before adding people directly to their payrolls. The water appeared to be a bit frigid in August.

• In a more positive signal, a gauge of the total work effort rose last month. The government's index for aggregate weekly hours rose 0.1 percent to 96.0. The average workweek was steady at 34.4 hours. Hourly earnings were about flat.

© 2019 Thomson/Reuters. All rights reserved.

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Friday, 07 September 2012 10:52 PM
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