NCPA - National Center for Policy Analysis

Unemployment Rate May Signal Economic Turnaround

October 9, 2002

In the clearest sign yet of an economic turnaround, the national unemployment rate declined from 5.7 to 5.6 percent, according to figures released Friday. However, the most important information was buried in the details.

The Bureau of Labor Statistics collects employment data from two different surveys.

One is a household survey that asks people whether they are working, looking for work or not looking at all. If they are working or looking for work, they are considered part of the labor force. If they are neither working nor looking for work, then they are not. The unemployment rate is calculated from this survey.

The other is the establishment survey, which asks businesses how many people they actually employ. Normally, the two surveys move in tandem, but there are times when they diverge, such as now, for reasons that are potentially important.

  • According to the establishment survey, there was a net loss of 43,000 jobs in September.
  • However, the household survey showed an increase of 711,000 jobs.
  • Over the last 12 months, the establishment survey has shown a net loss of 965,000 jobs, while the household survey has shown a net increase of 181,000.

Economist Brian Wesbury suspects that there are far more new businesses being established than the BLS figures indicate, because they are not yet on the establishment survey list. (The data will be revised later as the BLS finds them.)

The household survey data showing substantial employment growth come directly from workers. These data will not be revised and are not subject to the sampling problems that may be affecting the establishment survey.

Wesbury believes these new businesses are the source of significant employment growth. If that is the case, then the nation's economic prospects may be brighter than most economists believe.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 9, 2002.


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