Unemployment Falls to 8.6%, Employment Falls to 64.0%

This morning's headlines, before Herman Cain* dropped out of the Presidential race, was that unemployment had declined to 8.6%. I was immediately skeptical about the numbers, because a shift that big is not normal, in my experience. Sure enough, digging into the numbers we find this factoid.

The decline in the participation rate to 64.0% from 64.2%, was driven by a drop of 315,000 in the labor force which contributed to the 594k decline in unemployment.

Clearly, the news is not as good as news as the headlines would lead us to believe. New job creation was pegged at 120,000, but it is only about the number of new entrants in the labor force. It's good that there are new private sector jobs, but I have read various sources that peg the required number of jobs needing to be created per month between 200,000 and 250,000. In my opinion, the continued fall in labor participation rate is the key story here. This means we have a shrinking percentage of people working to support the overall economic output that we all rely upon. I will admit that a portion of the fall is not due to anything the administration could have done, because there are demographic trends, i.e. aging baby-boomers, contributing to a fall in labor force participation. The very long term trends can be viewed below from Calculated Risk.


Calculated Risk also points out that "U-6, an alternate measure of labor underutilization that includes part time workers and marginally attached workers, declined to 15.6% - this remains very high. U-6 was in the 8% range in 2007."

The other bad news is that the number of long term unemployed stayed stuck. From the government's BLS.

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.7 million and accounted for 43.0 percent of the unemployed.

This is a big problem for the long term, as these folks start to see themselves, and employers see them as unemployable. We have some serious problems with entitlements starting to be a huge drain on the federal budget. One way to alleviate part of the problem is for people to work longer into retirement. But the large number of long term unemployed and the declining labor force participation rate makes that outcome less likely.




*A quick note on Herman Cain. Without taking a position on whether he is guilty of anything he is accused of, I can safely say that he has displayed very poor judgement, by his own admission. Giving another woman money over the course of many years, without telling your wife, and not being prepared to discuss the issue during a Presidential campaign is too much to accept in a candidate.