The unemployment rate went up in January. Here's why that's a good thing.

Now hiring sign Arlington Virginia — Pedestrians walk by a "Now Hiring" sign outside a store on August 16, 2021 in Arlington, Virginia.
Olivier Douliery/AFP/Getty Images

In January, the country added a surprisingly high number of jobs, beating dreary forecasts.
The unemployment rate ticked up, which may seem like bad news. In fact, it's good.
It means more people joined the labor force looking for work as wages grew and people job switched.

2022 is already full of surprises — at least in the labor market.

The first jobs data release of the year — which tracks hiring in January — was unexpectedly robust. The Bureau of Labor Statistics said the country added 467,000 nonfarm payrolls in January, blowing economists' estimates of 150,000 payrolls out of the water. Even the White House had warned about a potentially ugly report.

Instead, the data points to a booming recovery, and one gain in particular is among the most notable: The unemployment rate ticked up to 4%, above the median forecast of 3.9%. While that may seem like a sour sign for the economy, it's actually one of the best data points of all. It means that more people were looking for work — and, with 952,000 people leaving their jobs in January, coupled with nine months of near-record quits, it shows that people had confidence in switching roles and in the jobs that were available.

The unemployment rate measures the share of the workforce that is currently out of work but actively looking for a job. If you don't have a job, but haven't gone on interviews or sent out a resume in the last four weeks, you might not be officially counted as "unemployed"; the distinction is you have to be actively looking for work.

Those active lookers and anyone who is currently employed are counted as part of the overall labor force. A persistent issue throughout the pandemic has been labor force participation rates ticking down for groups particularly hard hit by the pandemic, such as women.

But in January, labor force participation went up, rising from 61.9% in December to 62.2%, suggesting fewer Americans on the sidelines and more working or looking for work than previously thought. The employment-population ratio also ticked up slightly.

Daniel Zhao, a senior economist at Glassdoor, told Insider that the labor force participation rate rose largely due to revisions of the population numbers.

"It's not that we saw a large jump in labor force participation in January, but the silver lining is that it means labor force participation was higher heading into the end of 2021 than we had originally realized," Zhao said.

The number of workers who could only find part-time work fell slightly, alongside the number of "discouraged" workers who "believed that no jobs were available for them."

To summarize: More people were looking for work than we thought, and a good chunk of them found it. One of the biggest pandemic employment trends has been people sitting on the sidelines. But the latest data shows that people returned to the labor force as wages continued to rise, and the unemployment rate rose largely because of that.

Of course, there are still some big holes. Black workers' labor force participation rate rose in January, and their unemployment rate fell. Even so, the Black unemployment rate is 6.9% — more than double the white unemployment rate. That's a gap that would ideally shrink further, rather than moving in tandem, according to Zhao.

But January's data — and its implications for the last few months, with revisions included — shows that the labor market is still more robust than it originally seemed.

"Ultimately when I look at the modest uptick in the unemployment rate, I think the overarching story is still that the unemployment rate is low, labor force participation is even healthier than we realized, which is an indicator that employers are still hiring and workers are still looking."

Read the original article on Business Insider