Why the Unemployment Rate May Go Up

Why the Unemployment Rate May Go Up: "

Calculated Risk explains why he expects the unemployment rate to increase in the near
future:

Why do I expect the unemployment rate to increase?, by CalculatedRisk: ...Here are a few reasons why I think the unemployment rate will increase (some
overlap):

1) The main reason is the general slowing economy. There is
a general relationship between GDP and the unemployment rate (see
Okun's Law), and since I
expect a 2nd half slowdown (from a sluggish 1st half), I also expect few payroll
jobs to be added in the 2nd half - and that suggests the unemployment rate will
rise.

2) With the end of the housing tax credit, I expect residential construction
employment to decline further over the next few months.

3) The 4-week average for initial weekly unemployment claims has increased
recently. This is the highest level since February.

Click on graph for larger image in new
window.

This graph shows the 4-week moving average of weekly claims since January
2000.

The four-week average of weekly unemployment claims increased this week by
14,250 to 473,500.

The dashed line on the graph is the current 4-week average. This is the
highest level since February and suggests weakness in the labor market.

4) Few teens joined the labor force this summer. Perversely this low level of
teen participation appeared to push down the seasonally adjusted unemployment
rate. If this did impact the unemployment rate (it isn't clear), the impact will
be unwound over the next couple of months.

5) The Labor Force Participation Rate decreased from 65.0% in May to 64.6% in
July. This was a key reason the unemployment rate decline to 9.5% in June from
9.7% in May.

Some of this decline in the participation rate might be related to the
expiration of the Federal unemployment benefits - some people whose benefits
expired, and were unable to move on to the next tier, might have just given up.
Note: this isn't an argument against unemployment benefits!

Just over a week ago the qualification dates for the various tiers of Federal
unemployment benefits have been extended through November 30th. This extension
was also made retroactive to June 2nd. Some people who have given up might
rejoin the labor force to collect additional benefits. If this happens, the
participation rate might increase in August - and that will probably push up the
unemployment rate.

Yet what sort of urgency do we hear from policymakers over this problem? Little, if any."