- The Washington Times - Sunday, August 9, 2009

ANALYSIS/OPINION:

It’s too early to be popping corks off champagne bottles to celebrate the end of the recession.

It was announced Friday that the unemployment rate declined slightly to 9.4 percent in July while just 247,000 additional jobs were lost. That has been greeted as good news. The New York Times claimed that July’s unemployment numbers “suggested that the recession is near an end.” Using the same words, the Wall Street Journal declared that the new data is “suggesting that the recession is near an end.”

But there is a simple reason why the unemployment rate improved while jobs were being lost — 637,000 people dropped out of the job market. Those unemployed workers were so discouraged by their inability to find a job that they stopped looking for one. Only those looking for work are considered unemployed for the purposes of government data.

The July dropouts make up, by far, the largest decline in the number of people who consider themselves in the labor force during the entire recession. The total is almost twice the 358,000 increase in the people who left the labor force during June. Instead of trumpeting an unproven economic upturn, media stories should be focusing on all the people who have given up looking for work. Many others are taking part-time jobs that remove them from the ranks of the unemployed.

The real unemployment rate in July was 16.3 percent if the government counted the unemployed as well as those who have given up looking and those who have taken low-paying, part-time jobs because they can’t find full-time work. This 6.9 percentage point gap between the publicly discussed unemployment rate and these discouraged workers is unusually large.

The private sector continues to struggle. Construction, manufacturing, retail trade and professional and business services all suffered large declines in July. Government is virtually the only sector where employment is expanding. The government jobs do not represent a real solution. When the so-called “stimulus” spending ends or massive new deficits force us to constrain some of the increase in government spending, we will face even more unemployment.

Government expenditures provide a false sense of how well the economy is doing. A better economic indicator is the guy who has given up looking for a job.

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