Behind the unemployment numbers: an historic drop in the number of people in the labor forcePolicy

The unemployment rate falls to 8.3 percent, the stock market futures roar and the commentators practically batter themselves in this Wall Street Journal thread (with one going so far as to wonder if “…it’s a bit too early to start cranking up this old chesnut?”).

Yes, the headline numbers are quite good, particularly for those who understand that strong headline numbers mean even stronger chances of winning voter favor.

But as the inestimable Zero Hedge points out, the headlines, and all the shouting behind them, are so much nonsense:

A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.

So unemployment is down in a rapidly shrinking labor pool. And the jobs that are created aren’t quite equal to the ones that existed before (make sure to click over and look at the charts on the ZH post — they are eye-popping).

If all this is what the return of happy days looks like, we’re doomed.

More – this graph from the St. Louis Fed adds some visual perspective. The civilian participation rate has drops significantly after recessions going back to the 1940s before rising again. We may still be in the adjustment phase (click on the image to embiggen):

  • http://bearingdrift.com D.J. McGuire

    Erm, the jumped in non-institutional folks was due to a statistical adjustment (the details are on pages six and seven of the report). Also, the number of discouraged workers did increase, but not by much.

    Of greater concern is the difference between the household and payroll surveys. Household had over nine million more people working than the payroll survey did. That’s a difference of 6.5%.

  • Virginia Economist
  • Tim J

    These are the BLS “Table 5″ raw numbers. Waiting for the “revised number” adjustment and the report on personal income tax revenue into the Treasury.

  • Virginia Economist

    http://swampland.time.com/2012/02/03/january-jobs-report-good-news-for-the-economy-bad-news-for-the-pessimists/

    “But the census adjustments actually work against my theory and that of the Obama-detractors. The demographic adjustments had no effect on the unemployment rate, says Mary Bowler, the resident expert in these matters at the BLS. And when it comes to labor force estimates, the steep jump in the number of those not seeking work came entirely from the census adjustment, which added 1.25 million people to that group. If you take out the census adjustment, the labor force numbers stayed essentially the same, as reflected by the labor force participation rate of 63.7%. In other words, the spike in the number of people no longer looking for work is entirely the result of some people at the Labor Department adding numbers to their spread sheets rather than an actual observed shift anywhere in the real economy.”

  • Darrell — Chesapeake

    Going back over the past six years, the perma-pessimists at Zero Hedge have been more attuned to the economy than the hired talking heads from academia. It is almost as if, gasp, they were sitting in the board rooms when bad stuff is released. By the time the media publishes the scoop, it’s weeks old news to ZH readers.

  • ToR

    Hmm, Obama is, according to you, trying to “crush the labor force participation rate to about 55%” and yet he’s trying to get Congress to expand unemployment coverage. That just doesn’t seem to add up, does it?

    I’m curious, what would McCain have done better? Given the global economic crisis, current economic situation in Europe and Asia, and the expense of the Wars in Iraq and Afghanistan where would he have changed course and improved. Other than maybe having a more favorable Congress, I can’t see the Republican policies having improved anything.

  • Pingback: About Those Unemployment Numbers | The Write Side of My Brain