Can An Unemployment Rate Drop Be Bad?

This morning, the national unemployment rate fell from 10% in December to 9.7% in January. On the surface this appears to be positive progress in the country's march out of recession. Yet, the unemployment rate fell as approximately 20,000 jobs were reported to have been lost. This seems to point to serious problems in the economy. Likely, the unemployment rate drop was caused by more and more people running out of unemployment benefits, dropping out of the labor force or taking part time work instead of full time work. These three events would all cause a drop in the purchasing power of the American citizenry which might signal problems on the horizon for businesses who need increased sales to expand and increase hiring. Unfortunately, such a move would have a negative spiraling effect on the national economy. Traditionally, the unemployment rate is seen as a lagging indicator of economic performance; however, in this instance it might be a signal of problems that are of yet to occur.