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Why June's Unemployment Data Could Cause Confusion About How Fast the Economy Is Improving

By Christy Bieber - Jul 3, 2020 at 7:45AM

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The numbers for the month contained a lot of positives but they may also paint a misleading employment picture.

On July 2, the Bureau of Labor Statistics (BLS) released data on unemployment numbers for the month of June. Those numbers showed the economy gained 4.8 million jobs last month, bringing the unemployment rate down from 13.3% to 11.1%. 

The report had some bad news in that it showed that the U.S. has still only recovered about one-third of the overall job losses since the coronavirus pandemic took hold. And it showed that permanent job losses for the month hit 2.9 million, a figure that increased by about 500,000 jobs from the previous month.

But the report can also be considered good news as it's a clear sign of some economic recovery in the country. And, in fact, this news may even be better than it seems on the surface for one key reason: There was a problem with the way the data was collected last month, which the BLS aimed to correct with this new round of employment numbers.

Here's the issue and an explanation for why this month's report could be an even better indicator of recovery. 

Woman looking at search engine labeled Find job.

Image source: Getty Images.

A key change that could obscure the truth about unemployment trends

When the Bureau of Labor Statistics collects data on unemployment, information is obtained from both business reports and a survey of households.

When households are surveyed, individuals are classified in a number of different ways, including employed, unemployed, employed but absent from work, or not in the labor force.

The Bureau of Labor Statistics instructed those conducting the household survey in May to classify employees who were absent from work due to COVID-19-related closures as unemployed. However, the BLS acknowledges there was a clear misclassification error, and many furloughed workers were marked as being employed but absent from work even when they were actually temporarily laid off. If the number of employed workers absent from work for other reasons had been the same as in a typical May, the unemployment numbers would've been about three percentage points higher than the reported number. 

BLS indicated last month that it would take steps to correct this misclassification error and ensure people who were classified as employed but absent from work are correctly listed as unemployed in June if they've actually been laid off by their employer. And, on this month's report, the agency said "the degree of misclassification declined considerably in June." In fact, this month, BLS indicates that if the number of workers classified as absent for other reasons had been the same as in a typical June, the unemployment rate would've been about one percentage point higher than the reported number, at most -- and that "probably overstates the size of the misclassification error."

That means some workers listed as employed in May were likely reclassified as unemployed on this newly released June report. Unfortunately, because of that, the new data doesn't actually show with 100% accuracy how many new unemployed workers there are. After all, those people were already out of a job before even if the data didn't show it. 

The data collection error in May was substantial enough that the unemployment rate, which was reported at 13.3%, might actually have been as high as 16.4%. Since correcting this error means millions of people who were recorded as employed last month have likely been shifted over into the unemployed column, it's even more impressive the unemployment rate dropped substantially. It means enough people would've had to have been rehired to make up for those people and still show a drop in the jobless numbers. 

The stock market and your hopes of another stimulus check could both be affected

Even though June's data isn't necessarily an accurate reflection of the number of jobless Americans, it's one of the primary sources of information politicians and investors rely on to make their decisions.

Unfortunately, since it may not accurately portray the full extent of the recovery that has taken place, the stock market may not get as big of a bump as it should and lawmakers may feel they need to take action to help speed the pace of economic improvement even further. 

If you're hoping to pick up stocks at bargain prices, it may be good news that the improvement in the unemployment rate is being underestimated as this could give you a chance to buy stocks at a slight discount if some investors relying solely on the June numbers don't accurately assess the speed at which the economy is recovering.

And if you're hoping for more stimulus money, the error may actually work in your favor since the decline in the unemployment rate isn't as big as it otherwise would have been. Of course, since the jobs report suggests a strong recovery even with this potential error, it significantly reduced the chances of another stimulus check anyway.

If you're still struggling, you should contact your representatives to let them know so they'll be aware of your plight and can take that into consideration when deciding how to move forward on another COVID-19 stimulus check. This may be especially important, because while June's numbers show the economy is recovering at a healthy pace, some states have started to pause their reopenings or even begin closing down businesses again, so July's numbers may not be nearly as positive when the key data gets reported next month. 

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