I wrote the following article in June just after the Federal Reserve announced that it would not raise interest rates. It wouldn’t been more timely, if I’d published then. But, it was lost in the piles. However, even though the article is late, there’s still an insight to be gained from reading it.
In June, the Federal Reserve declined to raise interest rates. In response, Yahoo Finance reported:
“The Federal Reserve pushed back its plans to raise its benchmark short-term interest rate, a widely expected move following a series of mixed US economic reports.
“After a two-day policy meeting, the Federal Open Market Committee unanimously voted to hold the federal funds rate between 0.25% and 0.50%, citing weakness in recent employment data.”
That “weakness” was a surprising jobs report that, although economists had generally expected about 162,000 new jobs to be created in May, only 38,000 jobs were actually created—”the lowest level in six years.”
“Although the unemployment rate has declined, job gains have diminished,” the central bank wrote in its statement.
Does it make sense that the “unemployment rate declined” at the same time that the number of “jobs gains diminished” from an expected 162,000 to just 38,000? I won’t say that’s impossible, but it seems odd that, even though expected “job gains” fell by 76% (from 162,000 to an actual 38,000), the unemployment rate nevertheless continued to decline.
If the unemployment rate really declined, it sounds more like 124,000 people (who were expected to get new jobs but didn’t) simply “disappeared” from the unemployment rolls. They didn’t get jobs. Instead, they were simply deleted from unemployment calculations.
Result? Unemployment rates fell mathematically, but not actually.