September 3, 2021

The unemployment rate fell 0.2% in August to 5.2% after having declined  0.5% in July.  The labor force rose by 190 thousand in August.  Employment rose 509 thousand..  As a result, the number of unemployed workers fell by 318 thousand in August.  Payroll employment rose 243 thousand.  How come the two estimates of employment are different?  First, the two are figures are derived from separate data streams.  The payroll number is calculated from employment numbers reported by a large number of employers across all industries.  Employment for the unemployment rate calculation is derived from knocking on doors and asking people if they have a job.  It is known as the  household survey.  One conceptual difference is that the household survey includes people who are self-employed which would not be captured in the establishment survey.   In the end, there is just monthly noise between the two series with  the household survey being the more volatile of the two.

While the official rate is the most widely used, the reality is that the official rate can be misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of these workers has declined steadily since the recession ended in April of last year, but it is still a lot higher than it was prior to the recession.

We should probably be focusing more on the broadest measure of unemployment because it includes all of these underemployed individuals.  The broad rate jumped by 14.1% in April 2020 from 8.7% to 22.8%, but then declined steadily and now stands at 8.8%.  Full employment for this measure of unemployment is somewhere around the 8.0% mark.  We expect it to fall to 7.8% by the end of this year.

Given the steady gains in employment we look for GDP growth of 8.0% growth in Q3, and 10.5% in Q4.

Stephen Slifer


Charleston, SC