Unemployment Rate went down in May. Here's why (wonky)

[DrToast]

There's been a lot of confusion over the whether or not the unemployment rate actually decreased last month. The confusion stems from a footnote in the Employment Situation News Release for May 2020. Here's the important part. I'll summarize after if you don't want to dig in the weeds.

In the household survey, individuals are classified as employed, unemployed, or not
in the labor force based on their answers to a series of questions about their
activities during the survey reference week (May 10th through May 16th). Workers who
indicate they were not working during the entire survey reference week and expect to
be recalled to their jobs should be classified as unemployed on temporary layoff. In
May, a large number of persons were classified as unemployed on temporary layoff.

However, there was also a large number of workers who were classified as employed but
absent from work. As was the case in March and April, household survey interviewers
were instructed to classify employed persons absent from work due to coronavirus-
related business closures as unemployed on temporary layoff. However, it is apparent
that not all such workers were so classified. BLS and the Census Bureau are
investigating why this misclassification error continues to occur and are taking
additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to "other
reasons" (over and above the number absent for other reasons in a typical May) had
been classified as unemployed on temporary layoff, the overall unemployment rate
would have been about 3 percentage points higher than reported (on a not seasonally
adjusted basis). However, according to usual practice, the data from the household
survey are accepted as recorded. To maintain data integrity, no ad hoc actions are
taken to reclassify survey responses.

https://www.bls.gov/news.release/archives/empsit_06052020.htm

I included the full language for completeness, but if you find that confusing all you really need to know is that there is an error in how the monthly survey is conducted and that some people that are counted as employed are actually unemployed. And if you do count those people as unemployed, the unemployment rate is actually higher by about 3%. And so the monthly unemployment rate for May would be 16.3% instead of the 13.3% that made all the headlines. And since the unemployment rate for last month was 14.7%, it looks like the unemployment rate went up instead of down!

But here's the very very very very very important part.

That error that was mentioned? It also occurred in the last two months! And so if you want to use the adjusted unemployment rate for May (16.3%), then you also need to look at the adjusted unemployment rate for April. Here's the snippet from the April report:

If the workers who were recorded as employed but absent from work due to "other reasons" (over
and above the number absent for other reasons in a typical April) had been classified as unemployed
on temporary layoff, the overall unemployment rate would have been almost 5 percentage points higher
than reported (on a not seasonally adjusted basis).


https://www.bls.gov/news.release/archives/empsit_05082020.htm

And so if you believe the unemployment rate is actually 16.3% in May, then you can't compare it to 14.7% in April. You would need to compare it to the adjusted figure for April, which would have been 19.7%.

So using the adjusted figures, the unemployment rate went from 19.7% in April to 16.3% in May.
If you use the unadjusted figures, the unemployment rate went from 14.7% in April to 13.3% in May.

So if you hear someone say that the real unemployment rate is 16.3% and the unemployment rate in April was 14.7%, and so the unemployment rate went up, you should you know they are comparing apples to oranges.

Now there is one other potential issue, but I'm not sure if it changes the overall analysis much. But it does further show why it's not accurate to just tack on the Covid-19 adjustment to the reported figure.

I'm going to requote the report above and bold another key factor.

If the workers who were recorded as employed but absent from work due to "other
reasons" (over and above the number absent for other reasons in a typical May) had
been classified as unemployed on temporary layoff, the overall unemployment rate
would have been about 3 percentage points higher than reported (on a not seasonally
adjusted basis).

The monthly unemployment rate is released as a seasonally adjusted number. But the Covid-19 footnote says that if you include the workers who were recorded as employed but absent from work due to "other reasons," it's the NOT seasonally adjusted number that would be 3 percentage points higher.

So in actuality, if you want to account for the Covid-19 adjustment, the correct way to do it would be to add it to the non seasonally adjusted unemployment.

That's a little bit beyond my capabilities, but I'm going to investigate it a little further tomorrow.

But the bottom line is that you can't just take the "adjustment" and add it to the reported unemployment rate for the following reasons:
1. You would also need to compare it to the previous months "adjusted" number
2. You need to compare seasonally adjusted numbers to seasonally adjusted numbers.

[uponit7771]

1. Correct, it might be something wrong in the seasonally adjusted numbers. The "adjusted" number does

... not explain the drop in the U3 rate while continuing claims went up by 650,000 and labor force participation rate went up also.

That's rare to never happening no matter how many stats are thrown in the mix, a mix of people going and coming off of partial UE benefits might explain it but that's even more rare.

That's like having 200 new people hospitalized daily from CV19 in an area but only 20 infections recorded for nearly 3 or 4 weeks prior with a good testing rate.

That points to bad test or something else wrong in the numbers.

[DeminPennswoods]

3. I suspect there were a lot of people

going off unemployment to take temp jobs as delivery drivers, online order shoppers, etc. I think the past couple of months have been exceptionally volatile in terms of people job hopping around.

[uponit7771]

4. Weekly continuing claims would've captured temp jobs unless people were doing both which...

... gets captured and people have to pay back.

Hmmm, that's a possibility seeing how 40 million damn people claimed UE over the last 2 months.

It took the US 2 years after 1929 crash and 08 crash to get to 10% unemployment Trump got America there in 6 weeks due to his inaction.

[DeminPennswoods]

6. There weren't many women in the workforce

back in 1929 either.

[Squinch]

2. Well done! Thank you for digging through and giving us a clear, concise

explanation.

I start reading that language and my brain just starts to buzz. So thank you for the translation.

[Jersey Devil]

5. Unemployment went down due to massive spike in hired grave diggers (nt)

nt