Last month I characterized the uptick in the unemployment rate from 9.6 percent in October to 9.8 percent in November as disappointing but not disastrous, explaining that the move reflected changes in the labor force more than changes in job growth. This month it’s the same story but in the opposite direction.
Today’s Employment Situation report for December, released by the Bureau of Labor Statistics (BLS), shows a near historic 0.4 percentage point decline in the unemployment rate (July 1983 declined 0.7 percentage points, December 1959 declined 0.5 percentage points). But this improvement has as much to do with a decline in the labor force as with real job growth. According to the household survey (the source for the unemployment rate), the number of unemployed persons declined by 556 thousand, the combination of an additional 297 thousand persons in the count of those employed and 260 thousand dropping out of the labor force.
The additional 297 thousand persons employed would be great news if it was supported by results from the establishment survey (considered more reliable based on a larger sample), it’s roughly twice what is required to keep up with “normal” growth in the labor force and would bring down the unemployment rate through growth rather than contraction. But the establishment survey showed job growth of only 103 thousand (113 thousand added in the private sector and continuing weakness in state and local governments), so today’s unemployment rate decline, based on subpar growth and a shrinking labor force is a lot less than it appears.
It’s not all bad news, the October and November numbers were revised upward adding another 70 thousand jobs and bringing the average for the quarter to 128 thousand per month. But this is still too low to lower the unemployment rate significantly, despite today’s surprisingly strong decline.
I’ve updated last month’s graph to re-emphasize the point that since the middle of the year changes in the unemployment rate have reflected labor force developments more than job growth developments.