Over the long holiday weekend, I watched several programs where economists and pundits predicted that the unemployment rate will rise in the first half of 2012.
I’ll try to simplify why I agree that the unemployment rate will jump back to 9% in the first few months of 2012.
First, why did the national unemployment drop last month from 9% to 8.6%? One reason is because those who were surveyed, that were unemployed, I’d guess more than half, stopped looking for work. People aren’t considered unemployed if they haven’t looked for work in a particular month.
From my understanding, the Labor Department surveys 110,000 people each month, which is intended to represent 240 million employable workers. So every one person questioned represents 2,200 people who weren’t questioned. Please don’t ask me why they picked these numbers.
According to the Labor Department’s formula, if out of the 110,000 people only 100 stated that in the last survey they weren’t looking for work and in the first 2012 survey they are, the unemployment rate would increase 0.1%. So, if 400 people out of 110,000 stated they’re now optimistic and are looking for work again, compared to a few months ago the jobless rate would increase to 0.4% to 9%.
This is where it gets interesting. We presently have 6.6 million employable Americans who have given up looking for work. Do you think its possible with a new year, and Obama starting his presidential nomination tour (how we’re out of the ditch and moving forward) that a fraction of those 6.6 million who gave up looking for work will start looking again? If so, wouldn’t the unemployment rate go up?
Okay, one can argue that I didn’t take into account new jobs being created. According to Calulated Risk if the population only increases 1.8 million over the next 12 months. It would take 187,000 jobs added per month over the next year to hold the unemployment rate steady.