Unemployment fell from 5 percent to 4.7 percent in May even as job growth nearly stalled out, with just 38,000 new payroll jobs reported by the Bureau of Labor Statistics Friday.
Here’s how that happened:
While the payrolls number is taken from the bureau’s survey of businesses, the unemployment rate is calculated from a different survey, known as the household survey.
The household survey, adjusted for the season, also showed jobs growing only marginally in May, by 26,000, although that number is not directly comparable to the payrolls number.
If all those 26,000 new jobs had been taken by people who were unemployed in April, the unemployment rate would have remained at 5 percent, assuming that the number of people with or seeking jobs overall — the labor force — hadn’t changed. The unemployment rate is simply the number of job-seekers without jobs divided by the total labor force.
But the labor force didn’t remain constant. Instead, it contracted by 458,000 in May.
That decline had the effect of shrinking the denominator in the calculation of the unemployment rate, accounting for most of the 0.3 percent drop in the unemployment rate.
So while 4.7 percent unemployment in May was the lowest such mark since November 2007, the month before the recession officially began, it reached that low level for the “wrong” reason, namely because the labor force shrank.
