The U.S Jobless Claims Drop To 5-Year Low. Really?

Friday January 25, 20012

The media reported yesterday that weekly unemployment claims dropped by 5,000 to a 5-Year low. This is a great example of why media stories are so misleading. Here are the main points made by the Associated Press (AP) story:

1. U.S. jobless claims drop to a 5-year low of 330,000 which is a hopeful sign for the job market.

2. (This) is evidence that employers are cutting fewer jobs and may step up hiring.

3. The 330,000 to 390,000 weekly average of claims and the average increase of 150,000 new jobs per month is enough to slowly push down the unemployment rate which fell 0.7% to 7.8% last year.

As you know, this (150,000 new jobs per month) is not the reason for the drop in the employment rate.This amount just keeps up with the number of people entering the labor force. In fact, people dropping out of the labor force is the primary reason the unemployment rate dropped.

This is not an isolated example of "misinterpreted media facts" or simply one story as many news outlets use the AP releases as the basis for their stories.

Here is the problem. It's not the complete story. They did not mention that three states (California, Virginia, and Hawaii) did not report due to weather issus and a holiday. So, the government made an "educated guess" as to what the number of claims would be from those states. Then they ran all the data through their seasonally adjusted model to arrive at the 330,000 claims.

As many of you know, an important step in my critical thinking process is to always ask yourself what data is missing from the story. You also know they don't have the time or space to include every piece of information. You already knew there was a holiday last week and you knew -if you follow the weekly reports- that this is the lowest number in years. That makes this report unusual and therefore questionable. You have to put the data in context before you can evaluate the argument (a hopeful sign, may step up hiring and the reason the unemployment rate declined) before you can really evaluate this new informaiton.

By the way, this information is available on the government's website. Maybe the writer just didn't have enough time to do the story correctly.