Takeaways from the December Jobs Report
Today the Bureau of Labor Statistics released its monthly jobs report for December, which showed that the unemployment rate remained unchanged at 7.8%. The BLS also revised the November rate upwards to 7.8% from 7.7%. Establishment Survey (i.e. employer) data showed that roughly 155,000 jobs were created. As we do every month, we delve deeper in the unemployment data to gain a better understanding of the labor market.
1. Workforce Participation Rate Remained at 63.6%
As noted out in earlier jobs numbers analyses, this number is a critical indicator as to whether or not a recovery is truly underway. One of the hallmarks of this recession has been the number of people leaving the workforce entirely due to a lack of job prospects. The official unemployment rate does not count these people as being unemployed (or at all for that matter) leading some critics to question both the accuracy and motives of the BLS. However, the Workforce Participation Rate measures the total number of people considered to be part of the workforce, allowing the people who left the workforce to be quantified.
As the recession wore on, the Workforce Participation Rate fell quickly and has essentially stayed right around 63.5% for all of 2012, despite the drop in the unemployment rate. So while ground is not being lost in terms of employment, it is has not improved nearly as much as the unemployment rate would suggest. Were the economy in full recovery mode, this figure would climb rapidly as those who left the workforce return.
2. In 2012, the Number of People not in the Workforce Grew by 1 Million
Certainly not all of the 1 million not in the workforce are due to economic reasons. Looking at historical trends, population growth probably accounts for most of the growth over the course of the year. While some argue that retirements or continuing education are reasons for the steep increase over the past few years, their impact is greatly over stated. Neither demographic nor employment data support the idea that this increase is due to a baby boomer wave of retirements. In fact, the data shows more older Americans are working than ever before. Likewise, for schooling, enrollment data does not support the theory that most of these people are returning to college. Regardless of the cause, in a recovery this number would be dropping, not growing.
3. Alternative Measures of Unemployment Mixed
The U-3 or Official Rate remained level at 7.8%, U-4 increased from 8.3% to 8.5%, U-5 increased from 9.2% to 9.4% and U-6 remained unchanged at 14.4%. For a discussion of the different rates, click here.
The Revised Rate: (Methodology)
Taking into account workers no longer in the work force, but would like a job, the adjusted unemployment rate for December would be 9%, the same as it was in both October and November.
In addition to workforce surveys, the BLS also surveys employers, referred to as ‘Establishment Data.’ Generally speaking when it comes to job creation statistics, it establishment data is cited rather than workforce data simply because establishment data tends to be more accurate.
1. 155,000 Jobs Created in December:
While any job creation is better than job losses, the number created last month did little for improving the employment situation. Economists estimate that between 150,000 and 160,000 jobs need to be created every month just to keep up with natural population growth.
2. 2011 and 2012 Monthly Average: 153,000
153,000 jobs were created, on average, every month for 2012, which was the same as in 2011. This means that while job creation has kept up with population growth, little progress has been made in regaining lost jobs.
Looking Forward to 2013:
Taken as a whole, what does it all mean? The employment situation is not getting worse, as we have seen some job creation the data for December and indeed for all of 2012. However, the level of creation is only keeping up with natural population growth; it is not nearly enough needed to bring down unemployment in any meaningful way. Regrettably, there are no indicators in the employment data to suggest that this stasis is changing.
On a national basis, unemployment will not drop below 6.5% in four years as long as GDP grows at the forecasted 2% annually. We need to add 250,000-300,000 jobs per month to make a real short-term impact on unemployment.
Washington’s propensity to be involved in nearly all aspects of the free market will deter growth. Washington’s inability and lack of guts to tackle long-term issues that will bankrupt this country only adds to the problem.
Expect high unemployment for several years.