When you read the initial reports about the latest US unemployment figures, you would think the recession is over.
US stocks rose when the unemployment rate slipped a mere 0.1% to 9.4% as did European stocks , a sign that investors believe that better times are ahead. Unfortunately, it doesn't mean that at all. The statistics are misleading.
Even White press secretary Robert Gibbs has conceded that there is still a lot of work to do and that unemployment rate will hit 10%, making this just a temporary dip. Given the administration's track record on projections so far, it's likely to be much more.
Look closely at the Bureau of Labor Statistics numbers and you can see the problem. Non-farm payroll employment fell 247,000. So how is that jobs are being lost and unemployment is going down?
The answer is simple. The participation rate slipped 0.2%.
Translated into plain English, that means there are many out there who have given up looking for work and they're not counted. Under this system, the Labor Department only counts you as unemployed if you looked for work in the four previous weeks. If you didn't, and and even if you don't have a job, you are counted as "marginally attached" to the labor force and not part of the official monthly computation.
In other words, the apparent decline in unemployment is a statistical aberration.
My suspicion too is that there might have been a lot of summer hires that kept the rate from going up. But that's just temporary. Investors shouldn't be getting too excited. US unemployment will be high for some time to come.
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