Unemployment Falls in March, but not for the Right Reasons

According to the BLS, the national unemployment rate fell in March to 7.6%, from 7.7% in February. On the surface it would appear that the labor is recovering, however the data contained within the report shows the opposite to be true.

Labor Force Participation Rate drops to Lowest Level since 1979

The Labor Force Participation Rate fell to 63.3%. The last time the ratio was at this level was in May of 1979. After falling precipitously during the recession, the rate had essentially leveled off in 2012, ranging between 63.5% and 63.9%. However, there has been a downward trend since October of last year, slipping from 63.8% to 63.6%. After three months of holding steady at that rate, it fell in February to 63.5% and now down to 63.3% in March.

 

 This drop in the rate since October translates into a loss of more than 1.5 million people from the labor force. March alone saw more than 650,000 leave the labor force.

While one may be tempted to chalk up this decline to the first wave of baby-boomer retirements, however, the data shows that rather than retiring, many of them are staying in the labor force.

The way unemployment is calculated (click here for a full explanation) does not include people who have left the workforce. From the point of view of calculating unemployment, these people do not exist. However, if they were unemployed and stopped looking for work, they no longer count as unemployed, driving the rate down.

Only 88,000 Jobs were Created

The general rule of thumb used by economists is that roughly 150,000 jobs need to be created every month just to keep up with the natural growth in population, while March saw a paltry 88,000 created. For comparison, January saw 148,000 and February saw 268,000.

Of the jobs that were created, the two biggest gainers were Healthcare and Social Services (+27,900), Construction (+18,000) and Temporary Help Services (+20,300). Given that it is tax season, a large portion of the Temporary Help Services hires are likely related to tax preparation.

The sectors seeing the biggest losses were Retail Trade (-24,100), Government (-7,000), and Non-durable Goods (-7,000). Some have attributed the large decline in retail trade jobs to the increase in the Social Security Payroll Tax, which effectively reduced take home pay by 2% across the board. With less disposable income, people buy less and retail jobs are lost.

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