The increasingly irrelevant unemployment rate

June 1, 2012, 7:51 PM UTC

FORTUNE – When it comes to gauging the health of the U.S. economy, the unemployment rate is proving to be an awfully unreliable statistic. After modest declines earlier this year, the jobless rate in May edged higher to 8.2% from 8.1%, the Labor Department reported Friday.

The bad news shouldn’t be that surprising. It confirms what some experts suspected all along – that the pace of economic growth never really justified the drop we saw in unemployment earlier this year. Back in April, joblessness fell to 8.1% from 8.2% the previous month, with the economy creating a mere 115,000 jobs. Although that meant the unemployment rate reached its lowest point since January 2009, the number of jobs created was barely enough to keep up with new workers entering the labor market.

Federal Reserve officials have suggested that earlier declines in joblessness may have less to do with an improving economy than the fall in the labor force participation rate (the number of working-age Americans who are either holding a job or looking for one). Over the years, the rate has fallen for several reasons, although officials are stumped with what’s really driving recent declines. Is it aging baby boomers simply retiring, frustrated workers giving up on their job hunt, or workers retiring early?

Because the unemployment rate counts only workers actively seeking jobs, a shrinking labor force has actually made joblessness decline. Recently, the Fed attributed the nearly 1 percentage point fall in the unemployment rate since August 2011 with the decline in labor force participation. Today’s news that the rate rose reflected a glimmer of positive news: More unemployed people are returning to the job hunt, suggesting economic optimism.

Indeed, the unemployment rate is a bit arbitrary. But May’s jobs report is nevertheless one of the more important ones in a while, as The New York Times’ David Leonhardt points out. The economy added a dismal 69,000 jobs in May, less than half of what analysts had expected and the lowest number of total jobs created in a year.

In a way, the economy hasn’t really changed that much since the Great Recession ended in June 2009. As Leonhardt notes, the economy has fallen into a “Spring slump” for the third year in a row. What’s perhaps even more disturbing is that many of the factors that weighed down the economy three years ago continue to constrain growth today: Europe’s debt crisis, housing market troubles, government jobs cuts, and a hangover from the financial crisis.

As long as these obstacles remain, it’s hard to believe anything the monthly jobs numbers say – whether it’s good or bad.