Don’t Expect the Unemployment-Rate Decline to Last

From the Wall Street Journal | Feb 5, 2010 | By Sudeep Reddy

Among the surprises in Friday's government jobs report: Unemployment
fell sharply in January to 9.7% from 10%. The jobless rate rose as high
as 10.1% in October. But it's most likely to move higher, not lower, in
the coming months.

The Labor Department estimates the unemployment
rate from a survey of households, separate from the survey of employers
used to track changes in payrolls. (That figure showed employers
cutting 20,000 jobs in January.) The household survey asks people
whether they have a job or whether they want a job and searched for
one, among other questions. It showed a substantial gain in employment
- 541,000 jobs last month.

The Labor Department surveys tend to be volatile, producing figures
that jump around between months due to sampling. Last July, joblessness
declined to 9.4% from 9.5% - and then rose for three straight months
after that. The drop was due in part to a substantial decline in the
labor force. Last month, the labor force actually rose by about 111,000.

Some lawmakers - in particular, those with elections in November -
might try to use the latest figures to suggest that joblessness is
trending lower. And some investors who want the Federal Reserve to
tighten policy - as it has done historically only once unemployment
starts declining - will do the same. If so, they're likely to be proven
wrong. The jobless rate is likely to rise in the coming months as
people who had dropped out of the labor force start looking for jobs
again as the economy recovers. That would push the main unemployment
rate higher, perhaps back above 10%.

The January report did offer some other hopeful signs. The
government's broader measure of unemployment declined almost a full
percentage point to 16.5% from 17.3% in December. People working
part-time because they couldn't find full-time work dropped sharply.
That comprehensive gauge of labor underutilization, known as the "U-6″
for its Labor Department classification, accounts for people who have
stopped looking for work or who can't find full-time jobs. It should
continue approaching the U-3 figure (the official unemployment rate) as
people who were unemployed restart their job hunts.