The December employment report

On Friday, the Bureau of Labor Statistics released its report on the December Employment Situation. According to the payroll survey, the U.S. economy added 212,000 private sector jobs in December. Since the trough in February, 2010, an average of 144,000 private jobs have been added each month, so one might think that the recent performance is a substantive improvement. But this growth is barely sufficient to keep up with the growth in the population. Meanwhile, the household survey indicated that the civilian unemployment rate fell from 8.7% in November to 8.5% in December, although, as we shall see, there is far less in those numbers than first meets the eye. Some analysts have gone so far as to say that this is the beginning of a significant recovery. They are mistaken.

If you squint, it is almost possible to detect the “good news” from the latest job report in the blue line of this picture:

The red line shows the number of people who would be employed in the private sector under conditions roughly equivalent to full employment. Even if the U.S. economy keeps adding 212,000 private-sector jobs each month, we will not reach conditions resembling full employment until September, 2019. That sounds more like a catastrophe than a “recovery.”

The green line shows what will happen if the rate of employment growth since the trough in February, 2010 stays constant. Unless something changes, there will still be an unemployment gap of almost 6 million jobs in the beginning of 2020.

What about the supposed good news on the unemployment rate?

The unemployment rate is based on a survey asking people whether they have a job and whether or not they are actively looking for work. If people give up looking for work they are still unemployed by any honest economic measure but disappear from the official statistics.

The labor force started growing more slowly than the population at the beginning of 2007. This helped reduce the observed unemployment rate. Most remarkably, the civilian labor force actually started shrinking in the middle of May, 2009—the first time this has happened since the start of the Vietnam War. According to the official statistics, one million unemployed Americans simply vanished. If you account for the fact that the labor force should have kept expanding at the same rate as the overall population, more than six million Americans have disappeared in the past four years:

This is what the unemployment rate would have looked like if the labor force had grown at the same rate as the population:

As you can see, the official statistics are correct that the unemployment rate has fallen by about 0.5 percentage points since July, 2011. However, this is far less heartening when you consider that the real unemployment peaked in July, 2011, rather than in October, 2009, as the official statistics would lead you to believe. In fact, according to this adjusted measure, the unemployment situation is worse now than it was then.

So much for the good news.


About Matthew C. Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.

2 Responses to The December employment report

  1. K.S. Schultz says:

    Thank you for the reality check! As a job seeker who just received an email stating that my latest job application is competing with 152 other applicants, I have not seen an increase in opportunities since becoming unemployed in July, 2011.

  2. Lisa C. Klein says:

    The unemployment rate also does not reflect people who are under-employed – individuals taking jobs for far less than they were earning before or working part-time or without benefits. this is particularly serious for those in their 50s and 60s who should be at their highest earning stage of their lives.

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