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January 10, 2011

The Dark Side of December Employment

As reported by the U.S. Bureau of Labor Statistics (BLS), the big news on Friday was that the nation's "seasonally adjusted" unemployment rate dropped from 9.8 percent to 9.4 percent between November and December, the sharpest decline in more than twelve years. Nonfarm payroll jobs continued to rise, though by a modest 103,000 after seasonal adjustment. The numbers, of course, made headlines.

However, a closer look at the December data reveals a darker picture ... the unemployment rate dropped because the labor force is declining. Remember, the government doesn't count people as unemployed unless they say they say they don't have a job but would like to have one and have looked for work actively in the last four weeks. So what's really happened is that more people stopped looking for work in December, which accounts for part of the larger-than-predicted decline in the joblessness rate.

Alfred Tella explains at Real Clear Markets:

[T]here are times when a drop in unemployment is bad news and a rise is good news. When the job market is weak, jobseekers sometimes leave or postpone entering the work force because of poor prospects, causing the unemployment rate to fall. At other times, in a strengthening job market, the hopefuls waiting on the sidelines become encouraged and enter the labor force in large numbers and push up the unemployment rate. ...

... Between November and December the labor force participation rate fell by 0.2 point, a significant drop that occurred among men, women, and teenagers. If the participation rate had remained at its November level of 64.5 percent, given the reported rise employment, the unemployment rate would have fallen by only 0.1 point, to 9.7 percent. (Such a small change would be within the standard error of the unemployment series.) Reflecting the decline in labor force participation, another measure of unemployment did change significantly last month - "hidden" unemployment. It rose.

Total employment in the household survey recorded a 297,000 increase in December. However, the rise was within the monthly standard error range for that series, which means technically there was no significant change.

... The picture becomes slightly worse when the household employment numbers are adjusted to be consistent with the definition of the payroll data. (In the adjustment, agricultural employment, self employment, unpaid family and private household workers, and workers absent from jobs without pay are subtracted from total employment and multiple jobholders are added in). According to the adjusted data, jobs have fallen by 585,000 since the end of the recession.

Life Inc offers up a visual perspective of the results of Tella's point ... a graph showing that the "true unemployment" rate for December is actually 16.7 percent:

Posted by Richard at January 10, 2011 10:03 AM

• The Dark Side of December Employment - Jan 10, 2011