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Making Sense of Unemployment Numbers

May 07, 2010

By Barbara Marquand | Money Rates Columnist

With the announcement on Friday that the U.S. economy added 290,000 jobs in April--the biggest monthly gain in four years -- you'd think we'd be hearing champagne corks popping across the country.

Unfortunately that statistic was accompanied by another, less uplifting number. The unemployment rate rose from 9.7 percent to 9.9 percent.

What Gives?

The first number comes from the government's payroll survey, which asks employers how many people are working for them. The second number comes from the household survey, which asks adults whether they're employed and whether they're looking for work.

Understandably, after months of looking for jobs to no avail in a tough recession, some people just give up, and when they do, they're no longer counted among the unemployed. With the recent thawing in the economy, some of those folks who gave up are now hitting the pavement again in search of jobs. So actually the rise in unemployment signals a rise in hope, and that's a good thing.

But the big question is: when will that unemployment rate finally come down to a decent level of, say, 5 percent?

Not for years, according to a speech earlier this week by Federal Reserve Bank of Boston CEO Eric Rosengren, who told the Money Marketeers of New York University that even with fast economic growth--faster than we've seen in previous recoveries--unemployment won't reach 5 percent for at least a few years.

Investor's Business Daily offers readers this sober reminder Friday: just to keep unemployment steady, businesses must add 119,000 jobs a month to accommodate new job seekers, and the U.S. was down 8.2 million jobs at the end of 2009 from the start of the recession.

What does unemployment have to do with interest rates? A lot. Rosengren said low rates are still needed to encourage the economic recovery. Rosengren is a member of the Federal Open Market Committee, which sets the target for the federal funds rate. Banks then follow suit with the interest rates they offer consumers.

Bottom line: it'll be a while before you see much better rates on savings and money market accounts and CDs.

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