The January unemployment rate was released this morning. Let’s get one thing out of the way right now. Last month I forecast 8.7% for January. The actual was 8.3%. “Forecasting is difficult, especially when it’s about the future.” – Nils Bohr
Economics is known as the dismal science. You’re about to learn why. How can a 0.2 percentage point decline in the unemployment rate be bad news? Read on.
First, every January the BLS updates their data for the civilian non-institutional population to align their data with information from the Census Bureau and other sources. Guess what? The bump to population was 1,685 thousand. At the same time the civilian labor force increased by 508 thousand. The labor force participation rate fell to 63.73%, the lowest level since 1979.
So apparently there were about 1.7 million folks that BLS thought were dead that were, in fact, alive. Some have argued that the decrease in the labor force participation rate is partly caused by the retirement of baby boomers. I wish. Everyone I know born after World War II is still working or looking for work.
Let’s look at changes between December, 2011 and January, 2012. The number of people unemployed fell by 339 thousand. Good news. And the number employed rose by 847 thousand, also good news. But 1,177 thousand people dropped out of the labor force. The employment – population ratio has remained virtually constant at 58.5% for the last three months. That means the gyrations between employment, unemployment, and labor force dropouts are just about offsetting each other.
When the unemployment rate drops mainly because an additional million people have left the labor force and population estimates are revised … well, let’s just say this report is not the sign of a healthy economy.
As always my work is an open book. Click here for the most recent Excel workbook.