Friday, March 9, 2012

Unemployment Report - Some Good News

This month's jobs news from the administration is that unemployment remained steady at 8.3%. Of course this isn't being trumpeted as good news the way last month's numbers were. However, the news is actually good for the first time in a long time. I have stopped believing the official unemployment numbers and concentrated instead on labor force participation. The participation rate is easier to calculate, harder to manipulate and is a better picture of economic health. No matter how you slice it, the people who are working have to produce the goods and services for those who are not. Even if those who aren't working are living off of their savings or government checks, the equation doesn't change. (Calivancouver might help me with the nuances of imports in this equation, but the theory is correct in the aggregate.)

US Labor Force Participation Rate  Chart

US Labor Force Participation Rate Chart by YCharts

We had a slight uptick in participation rate last month, but as you can see the overall trend is quite grim. It will take many months of improvement before we can say that the economy is really healthier from a jobs perspective. What saved GDP growth in 2009 and 2010 was the increase in productivity. Even as workers lost jobs, businesses made huge leaps in productivity per worker, probably by shedding the least productive workers. (That is not an indictment of those laid off, they may have been the least productive because they were stuck in a factory that lacked modern tooling or had energy inefficient equipment.) Now, the productivity gains have tapered off, and total employment is not increasing. Hard to see how the economy can return to normal growth of 2.5% under those conditions.


  1. The only way to "trend" or long term sustainable growth of 3% is through aggregate demand improvement. Improvement in demand takes confidence. The current environment (and leadership) just doesn't inspire the necessary confidence. Things seem to be improving (finally) a bit here, but how confident are the Europeans right now? Not much consumer or gevernment spending growth from there anytime soon.

    For all the faults of the IMF, the "World Economic Outlook" on their website, updated twice yearly, has latley been far superior to the info from Washington.

  2. Excellent charts and analysis!