Jobs: Americans woke up Friday to the good news that the unemployment rate had dropped sharply from 9% to 8.6%. On closer inspection, the decline is highly questionable — and doesn't warrant a surge in optimism.
The White House hailed the news as "further evidence that the economy is continuing to health" and proving the $447 billion stimulus proposal "is the right medicine" for what ails us. Some in the media likewise saw good news, with headlines such as the Boston Globe's "Unemployment Drops To Lowest Since 2009."
We're not trying to be Grinches, but the decline in the unemployment rate is highly suspect for many reasons.
The number is derived from a huge survey of 60,000 households the government takes each month. In November, the survey showed the labor force shrank by 315,000. That shrinkage makes the unemployment rate look a lot better than it is.
This is questionable because in the previous three months, the labor force increased by 323,000 workers on average. Statistically, a one-month reversal in the size of the workforce of more than 600,000 people just doesn't make sense — unless an awful lot of people threw up their hands in disgust and quit looking.
And that's what seems to be the case. The labor participation rate declined to 64% from 64.2% a month before. Usually, it rises when jobs are growing as people rejoin the labor force.
"Some of the decline relates to the aging of the U.S. population, but a substantial portion of the decline reflects the lack of well-paying jobs, and it (is) driving people from the labor force, discouraged," wrote economist Anthony Crescenzi of bond giant Pimco.
That is not good news.
Looking at other data, both public and private, shows why that is true.
Take the number of net new jobs businesses create in a given month. For November, it was 120,000 — weak by any measure. Over time, we need to create 130,000 new jobs each month just to soak up new entrants into the workforce.
At the current rate, it will take until May 2016 just to regain the number of jobs we had in 2008 (see chart).
Weekly claims for unemployment benefits, another government measure, rose 6,000 to a seasonally adjusted 402,000 after remaining below 400,000 for three weeks in a row, the Labor Department said Thursday.
This is significant, since government and Wall Street economists say jobless claims must fall below 375,000 and stay there to make a real dent in unemployment.
And there are private measures of unemployment that still show deep distress across the country when it comes to jobs.
Take the Gallup "underemployment" survey, which the polling firm has been taking dutifully for decades. It shows underemployment — the share of workers without jobs plus the share working part time but wanting full-time work — hit 18.1% in November, up from 17.5% just two months ago and 17.2% a year earlier.
Our own IBD/TIPP Poll estimates that nearly 25% of all households have someone who's unemployed and looking for work — roughly 32 million Americans.
We're happy that 120,000 people found jobs in November. But this is no real jobs recovery.
We can do a lot better. Sadly, those in charge in the White House seem to think this is good enough.