Unemployment Rises 0.1%? Yawn. Wake Me Up When It Changes By 0.3%

Key Takeaways

• Small monthly changes in the unemployment rate often grab headlines, but economists say they aren’t significant unless it changes by at least 0.3% over three months.
• The BLS surveys that determine the rate are subject to some sampling error, so blips smaller than that are likely more noise than signal.
• The next report on job creation and the unemployment rate is due to be released Friday.

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Forget about small monthly changes in the unemployment rate: the number is only meaningful if it’s a sustained change by at least 0.3 percentage points over three months.

That’s according to researchers at the Federal Reserve Bank of St. Louis, who highlighted the sometimes-overlooked statistical reality behind one of the most closely-watched figures in economics.

In a blog post Monday, researchers Alexander Bick and Kevin Bloodworth II noted the unemployment rate is based on a survey of 60,000 people by the Bureau of Labor Statistics that, despite being the gold standard of economic statistics, is subject to a certain amount of error and noise.

What This Means For The Economy

Statistical significance is an important concept to keep in mind when interpreting changes in the unemployment rate and other economic data: tiny changes may not say much about the health of the economy.

“Individual monthly changes, even of 0.2 percentage points, are often too noisy to determine whether they reflect true fluctuations or sampling variation, while sustained movements over three months of at least 0.3 percentage points provide much stronger evidence of genuine labor market trends,” they wrote.

Related Education

Statistical Significance: Definition, Types, and How It’s Calculated

What Is Unemployment? Causes, Types, and Measurement

In other words, when the BLS’s highly anticipated report on the job market comes out Friday, don’t read too much into small changes in the unemployment rate compared to January. That month, the rate was 4.3%, just a tick lower than 4.4% in September. (There was no data three months before that in October due to the government shutdown.)

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