How Rising Unemployment Could Be a Good Thing

April 24, 2016

One of the hardest jobs of an economist is to successfully use the incredible amount of variables in the world’s economy to predict what will happen next. The media loves to use various economic reports to drive the news cycle and we are constantly bombarded with “the worst” stories every few weeks. Just recently a slight uptick in the unemployment numbers was reported as a clear sign of decline. However, if you take a step back, it could be good news as people are returning to the workforce.

 

Each month the Bureau of Labor Statistics reports on monthly unemployment. This last March we saw an increase in unemployment to 5.0% from 4.9% in February. While this is very slight and unfortunate for anybody who lost their job in March, there also could be some good news buried in the numbers. When the government pulls together their statistics, they only include people who are looking for work. This makes sense because you don’t want to count retirees or people who want to stay at home. However, this number excludes those who have given up but should normally be working. After the last recession, the number of disenfranchised workers skyrocketed (historically speaking) and many simply stopped trying to find work and were thus excluded from the unemployment numbers.

 

The good news is that for really the first time since the crisis, we are seeing more workers return to the workforce. In March, nearly 400,000 individuals were added to the labor force. This was the fourth month in a row that the participation rate increased – the longest increase since 1992. In addition, the U.S. has added jobs now for an unprecedented 66 months in a row. While we are still historically at a lower participation rate than the last few decades, a reversal could help propel the economy forward even though we are nearly seven years into the recovery.

 

 

Even if unemployment begins to tick up as more workers enter the workforce, it overall should be a healthy sign for the economy. If people are finally feeling confident that they can find work again, that could help propel additional spending and investing which will continue pushing the economy up. While no cycles last forever, be careful of those who are quick to point to a single report and make any sweeping statements. There is a lot happening in this world of ours and it's important not to get sucked into any simple explanation of what is going on.

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