Job losses continued to rise in July, but unemployment declined – how is that possible?

As a general rule, when more people lose jobs than find new ones, the unemployment rate rises. This was not the case in July, causing some concern and questions as economists and other followers sought to dig through the Bureau of Labor Statistics’ most recent jobs report.

As we look a little closer, there’s an important data point which helps to clear up this anomaly. Part of what the Labor Department tracks is also how many unemployed workers are looking for jobs – in July, that number dropped drastically. In fact, over 600,000 people gave up on their job search in July. While the reason behind these departures is unknown, their leaving the job market altogether caused the unemployment rate to drop slightly.

While declining unemployment is always a welcome sign, it’s important that we keep this data point in perspective. In the coming months it’s widely anticipated that job losses – albeit lower than in the earlier part of the year – will continue, so unemployment will likely react accordingly. So, while July’s report was absolutely a step in the right direction, it’s important to keep in mind that there still may be some bumps left on the road to recovery.