Skip to Content

U.S. unemployment rate falls to pandemic low of 7.9%, but that's not the whole story

By Jeffry Bartash, MarketWatch

Nearly 700,000 people stopped looking for scarce jobs and dropped out of the labor force in September -- so they aren't counted in the unemployment rate

The unemployment rate has shrunk from a modern record high of 14.7% during the worst stages of the coronavirus pandemic to just under 8% in September, but the rapid plunge is not nearly as good as it looks. Not by a longshot.

The jobless rate fell for the fifth month in a row, to 7.9% from 8.4%, the government said Friday. Good news, right? Yes, but it comes with a lot of caveats.

Read:U.S. adds 661,000 jobs in September and unemployment rate falls to 7.9% (link)

First and foremost, nearly 700,000 people stopped looking for scarce jobs and dropped out of the labor force in September. As such they aren't counted in the unemployment rate.

More broadly, the size of the labor force dropped to 160.1 million last month from 164.5 million in February, the last month before the viral outbreak in the U.S. That means 4.4 million people have basically fallen off the map.

Then there's the ongoing problem of people surveyed by the government not answering its employment questionnaire correctly. Many respondents who've been furloughed continue to indicate they still have jobs even though there's little chance they'll be called back.

Had the survey been answered properly, the Bureau of Labor Statistics said Friday, the official unemployment rate would have been about 0.4 percentage points higher. Or 8.3%.

So what's the real unemployment rate? Most economists believe it's at least several points higher.

"Given the large number of people who have exited the labor market, that number understates the true level of unemployment by roughly 3 percentage points," said chief economist Joe Brusuelas of RSM. "For this reason, the 'real unemployment rate' is likely somewhere between 11% and 12%."

Read:Consumer confidence surges to highest level of coronavirus era (link)

Another close proxy is the so-called U6 unemployment rate included in the government's report. It captures more of the people on the fringes of the labor market.

The U6 rate fell to 12.8% in September from 14.2% in August. While still quite elevated, it's come down sharply from a pandemic peak of 22.8% in April. Nearly half of the 23 million people who lost their jobs early in the crisis have since returned to work, government data show.

Even that, that still leaves some 11 million people or perhaps even more on the outside looking in.

-Jeffry Bartash; 415-439-6400;


(END) Dow Jones Newswires

10-02-20 1555ET

Copyright (c) 2020 Dow Jones & Company, Inc.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.