Key Unemployment Rate Determinants

1. The number of state continued claims in the BLS reference week.
2. Labor force changes (retirees, other dropouts, new employment)

The BLS reference week is the week that contains the 13th of the month.

Continued Claims

BLS Reference Week Comparison

• 14,535,000 for August
• 16,951,000 for July

That is a decrease in unemployment of 2,416,000

Jobs Report vs Continued Claims

The 5 million difference in the April Jobs report is due to the huge number of gig workers unable to file state claims at the onset of Covid.

I suspect august will be more like July. If so, it will reduce the unemployment rate.

July Jobs Report Household Data

Note that the number of unemployed nearly matches the previous reference week of 16,951,000. The data is constantly adjusted so it will not match exactly.

Unemployment Rate Calculation

The Unemployment Rate is the Number of Unemployed Divided by the Labor Force.

The number of employed is not a direct input.

What If?

If the labor force remains the same but the number of unemployed decreases by 2,416,000 to the number of continued claims, we can estimate the next unemployment rate as follows:

Rate = 14,535,000 / 159,870,000 * 100 = 9.1%

That's my estimate for Friday.

If we subtract in 613,000 as happened in July, the calculation is as follows:

Rate = (14,535,000 - 613,000) / 159,870,000 * 100 = 8.7%.

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If the 630,000 discrepancy goes the other way the unemployment rate would be 9.5%.

Bloomberg Estimate

Employers probably added 1.4 million workers to payrolls, not far from July’s result of 1.76 million, according to a Bloomberg survey ahead of Friday’s Labor Department report, which covers the period through mid-August. Economists see the jobless rate at 9.8%, almost triple its level before the pandemic.

The headline payrolls number is likely to reflect a boost from about 238,000 temporary workers hired to conduct the decennial U.S. census. While the overall gains reflect additional business reopenings and an ebbing of Covid-19 cases, the economy remains fragile with the disease untamed.

Weekly jobless-claims figures due Thursday will give a more current sense of the state of the labor market following a report that showed improvement with some caveats.

Jobs Matter Little

An increase in employment actually matters little unless the number of unemployed drops the same.

It's the labor force and unemployed that are the key determinants.

In July , despite an employment increase of 1,350,000 the labor force shrunk by 62,000. It was the decline in unemployment, not increase the increase in employment that mattered.

A rising labor force lowers the unemployment rate but not nearly as much as falling unemployment.

Jobs vs Unemployment

The headline boost in jobs of 238,000 temporary census workers is essentially meaningless to the unemployment rate but important to the jobs report.

Previous Calculation

For June, there were continued claims of 16,951,000. If we divided that by the May Labor Force (assuming it would not change as we did for this month) we would have guessed an unemployment rate of   16,951,000 / 158,227,000 = 10.7% vs the reported 11.1%.

The 10.7% rate was due to the reported unemployment of 16,338,000 vs claims of 16,951,000.

Take the Under

The Bloomberg consensus Unemployment Rate is 9.8%.

I will go with 9.1% based on my calculation.

Realistically, however, the number of unemployed should be greater than the number of continued claims, and arguably far more due to gig workers unable to file claims at the state level.

Realistically Speaking

A more realistic estimate of the actual unemployment rate would be 18%-20% not 10%.

My 9.1% estimate is what I expect the BLS will report, not actual  conditions.

Related Articles

Due to points 2 and 3, the August Jobs report may be as good as it gets for some time.

Mish