Good news people! Unemployment dropped!
The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.
Yup, it dropped .3 percent but only 74,000 jobs were added. About those 74,000 jobs:
Once again, in its sheer panic to tout the quantity, or lack thereof, in the case of the December jobs number, the frenzied media and pundits completely ignored the quality of the jobs gained in the last month of December. Or lack thereof. Because as the simple breakdown below shows, of the 74K jobs gained in December, 55%, or 40K were the worst of the lot when it comes to wages or benefits: temporary jobs.
The real reason the unemployment rate has been dropping is because so many people are leaving the workforce completely. Last month 347,000 people left. While 74,000 were added and most of those were temporary.
Diving even deeper into the numbers is Steve Eggleston: (via Hot Air)
– 4,884,000 (seasonally adjusted) worked fewer than 35 hours due to slack work, an increase of 16,000 from last month.
– 2,592,000 (seasonally adjusted) worked fewer than 35 hours due to part-time work being all the work they could find, an increase of 93,000 from last month.
– 3,550,000 (not seasonally adjusted) worked both a full-time job and at least one part-time job, a drop of 41,000 from December 2012.
– 1,969,000 (not seasonally adjusted) worked multiple part-time jobs in lieu of a full-time job, a drop of 149,000 from December 2012.
All in all, if the labor force had stayed consistent since the end of the recession (according to the National Bureau of Economic Research’s Business Cycle Dating Committee) the unemployment rate today would be 10.8%. So why is it 6.7%?
To understand how the labor force numbers affect the unemployment rate, it helps to understand how the unemployment rate is calculated. First, BLS determines who is a member of the civilian non-institutional population: people who are 16 years of age or older who are not inhabitants of institutions (prisons, mental institutions, etc.) and not active duty members of the U.S. military. Next, BLS determines what percentage of those individuals are members of the labor force: that roughly consists of people who are either working or are looking for work. Then, BLS determines how many individuals within the labor force are employed. Subtracting the number of unemployed persons from the labor force gives you the number of unemployed, and dividing the number of unemployed by the total labor force gives you the unemployment rate.
If you hold total employment constant and increase the size of the labor force, the number of unemployed persons will increase, as will the unemployment rate. A shrinking labor force, however, can completely mask a serious job shortage by excluding those who stop looking for work altogether from the calculation of unemployed persons.
In June of 2009, the labor force participation rate was 65.7 percent (by way of comparison, the average of the last decade is 65.1 percent, while the peak was 66.5 percent in June of 2003). Since the end of the recession, that number has nose-dived. At the end of last month, it hit 62.8 percent — on par with what the U.S. experienced in the late 1970′s (although at the time, the number was on the upswing).
What does this all mean? Rather than being the sign of a vibrant economy, the falling unemployment rate is actually an arithmetic artifact of the BLS head-counting process. If the labor force participation rate had held steady since 2009, the number of people in the labor force today would total nearly 162 million people. Instead, BLS reports the official number to be just shy of 155 million.
And thanks to how BLS calculates and reports the official unemployment, those 7 million people are not included among the ranks of the unemployed. Add them back in and you have an unemployment rate that averages a very stubborn 10.8 percent since the end of the recession.
So while the media and the Democrats may be hyping the drop in unemployment rate today, there is nothing to celebrate.
It’s gotten worse.