January Unemployment drops because people are leaving the labor force

January Unemployment drops because people are leaving the labor force

The US Bureau of Labor Statistics announced on Friday, February 4th, 2011, that the US unemployment rate (U-3) dropped to 9.0%. The 0.4% drop in the rate, which on the surface, may increase business and consumer confidence, is the results of people leaving the labor market.

The lower rate was really due to a drop of 2.29 million people between Jan 2010 and Jan 2011 who are not in the labor force. (See BLS data here.) . Obviously the drop is due to the poor labor economy, but no is quite sure of the specific reasons why people leave the market. Some reasons include early retirement, lack of work, unable to retrain, geographic limits or being discouraged. The labor participation dropped from 64.3% in December to 64.2% in January 2011.

There were some statistical changes by the BLS starting in the month of January. There was a statistical reduction of civilian labor force by 504,000 (0.3%) and a large reduction in the unemployed by 622,000 (4.5% drop). The labor force dropped a tiny bit but the number of unemployed dropped by 14 times as much. They dropped off the unemployment rolls and are no longer counted thus reducing the rate.

In a more realistic job reports, the Non-Farm payroll grew by only 36,000 jobs. The biggest gains were in manufacturing (+49,000) and retail sales (+27,000) however courier and messengers lost 44,000. Government lost 14,000 jobs. Education as flat and healthcare added 13,000. Construction lost 32,000. One bright spot was durable goods manufacturing which added 62,000 jobs.

As mentioned earlier, the number of people “Not in the Labor Force” increased from 83.876 million in January 2010 to 86.168 million in January 2011 and increase of 2.29 million workers. That’s a huge number of people who are no longer participating in the labor market. The figure includes 6.643 million who want work and 993,000 who are “discouraged”.

While the general unemployment rate (U-3) dropped 0.4% to 9%, the Black Unemployment rate was little changed at 15.7%. The rate for Hispanics was 11.9% and teenage unemployment was 26%. Black teenage unemployment was 45%. U-6, the widest measure of unemployment, was 16.1 percent. Basically 16% of the labor force wants to work and cannot.

Average unemployment duration also increased. The new average duration was 36.9 weeks. However, the old figure from December 2010, 34.2 weeks, is not directly comparable. The BLS will now collect unemployment duration for 5 years rather than two years. The median (half under / half over) decreased to 21.8 weeks. 6.2 Million people (44% of the total) were out of work for more than 27 weeks.
The number of people working part time for economic reasons was approximately 8.4 million. The number of discouraged workers remained at about 1 million. Discouraged workers are people who have not looked in the past 4 weeks because they believe no work is available, could not find work, lack training or employer discrimination.

The ADP employment report on Feb 2nd, 2011 which showed an increase of 187,000 jobs created in January. The December number of 297,000 was revised downward to 247,000. Economist believe employment must grow by 130K to 150K to keep up with population growth.