Is the Unemployment Rate Fraudulent?

There have been claims by Jack Welch of GE and others that the drop in the unemployment rate to below 8% is election fraud, so let’s take a look at the BLS data. First we will look at the unemployment rate through time. Next, we will look at employment through time. A more detailed look is available by considering the month to month change in employment next. Finally, we will look at the labor force participation rate.

As we can see in the graph directly below, the recent decrease in the unemployment rate to below 8% seems to fit the pattern of the last 3 years or so. That is, there has been a slow decline in unemployment. So the unemployment rate itself is not terribly surprising, although many analysts had thought that the unemployment rate had bottomed out. Apparently not so.

Unemployment Rate

Employment has been rising as can be seen in the graph directly below. But even though employment has been rising, it has not reached levels achieved in 2008.

Total (nonfarm) Employment

The change in employment this month is a bit of a surprise, however. Note in the graph below that there are precedents for the huge increase, but the precedents are few and far between. That is, January of 2012 almost comes up to the level this last month. Otherwise, you would have to go back to January of 2003 to find an increase of the same magnitude. This is the source of the doubts that have arisen regarding the unemployment data. In other words, this data point is highly unusual and was not expected. We cannot check this data point, but we will be watching for this next month. What would we expect to see? A much lower number.

Month to Month Change in Employment

Going back to the first graph, a person might ask what makes it possible for the unemployment rate to be declining in such a lackluster economy. The answer is that labor force participation is declining: people are leaving the work force as seen in the graph directly below. This rate had been stabilized at approximately 66% for the several years prior to the Obama administration. But now it is between 63% and 64%. Furthermore, it appears to be on a path to decline further. This is not a good thing.

Labor force participation