A Great Jobs Report along with a Great Teaching Lesson

The latest jobs report from the BLS offers a great teaching lesson about how the unemployment rate is calculated.  Here's why: it is one of the best jobs reports we've had in a long time even though the unemployment rate actually went up.

First, notice the 257,000 new jobs created in January.  As the graph below shows, we are now working on almost 5 years straight of positive jobs growth, with 3.2 million new jobs in the past twelve months alone.


The second piece of good news is the increase in the labor force participation rate (LFPR) to 62.9 percent.  And while labor force participation is still at historically low levels (see graph below), it seems possible that the downward trend has finally reversed as the economy is picking up steam.


With all this good news, why did the unemployment rate actually rise to 5.7% in January?  It rose because it is calculated as the portion of the labor force that is unemployed.  The labor force grew by over one million people in January.  And while about one-fourth (257,000) of these found jobs, the others did not, and so the unemployment rate increased.


This tick up in the unemployment rate should not be seen as bad news.  In the long run, we want the economy to be producing lots of jobs - jobs that draw people back into the labor force from disability, continued education, and perhaps even retirement.

Jobs Growth Continues

The U.S. economy added 321,000 new jobs in november, extending the streak of positive jobs growth to fifty straight months.  So far in 2014, nonfarm employment has grown by 2.65 million jobs or 221,000 jobs per month.

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As they are studying for finals, students might like to know which subjects relate to industries that have recently experienced significant jobs growth.  For example, 86,000 jobs were added in professional and business services in November alone, while the previous 12 month average was 57,000 jobs per month. Digging further, there were 16,000 in accounting and bookkeeping alone. So any students struggling to find incentives to study for accounting exams need just consider the job prospects waiting for them.  Another career path to consider might be health care, which added 37,200 jobs in November.

Unfortunately, all this jobs growth did not reduce the unemployment rate, which remained steady at 5.8 percent.

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Another Good Jobs Report

This morning, the BLS released the Employment Situation report for October and the news is very good.  The unemployment rate is now back to 5.8% for the first time since July 2008. 


In addition, there were 214,000 new jobs added in October.  The economy has added more thatn 200,000 jobs per month for nine straight months now.  In 2014, we are averaging 229,000 new jobs per month.  That is real recovery.



Labor Force Participation Rate Keeps Falling

I've blogged about this before (see here), but the labor force participation rate (LFPR) just keeps falling.  Nobody sees this as positive news - more and more U.S. workers are sitting on the sidelines.  The latest jobs report brought the good news of a falling unemployment rate, but part of this is because workers are leaving the labor force.  As the graph below shows, the overall LFPR in the U.S. is now down to 62.7 percent, which is the lowest it has been since many women entered the labor force in the 1960s and 70s.  

One way to clarify the magnitude of this decline is to focus on the LFPR for men only.  This has steadily fallen from almost 90% in 1948 to just 69.1% currently (see the graph below).

Also, let's not conclude that this is all due to the aging of the baby boomers.  As Michael Strain recently noted in a series of tweets (here is one), the LFPR is declining even among those aged 25-54.  The LFPR for this age group is plotted below.
All of this means that the economy is not as healthy as we would like and that part of the reason why the unemployment rate is dropping is that people continue to leave the labor force.

Unemployment Declines to Lowest Level since 2008

The unemployment rate dropped to 5.9 percent in September, the lowest level since July 2008.  The last time our unemployment rate was below 6 percent, the economy was in the free fall of the Great Recession.   


The drop in unemployment was driven by strong jobs growth, with 248 thousand jobs added to nonfarm payrolls.  To understand just how strong this is, we can compare this to average job growth over the past five years, which was 154 thousand new jobs per month.


In addition to these new September jobs, there were revisions to earlier estimates of nonfarm employment: July was revised up by 31 thousand and August by 38 thousand jobs.

Finally, students may be interested to know that employment in "food services and drinking places" increased by 20,000 in September and 290,000 over the past year.

August Unemployment Rate Steady

The unemployment rate for August ticked down to 6.1 percent, but this was not considered a great job report by most economists.


The disappointing news is on the job growth side, with just 142,000 jobs added (see graph below).

On the one hand, 142,000 NEW jobs can't be considered terrible news.  On the other hand, the big issue with the recovery from the Great Recession has been whether the economy can sustain jobs growth.  For comparison purposes, note that, since 2011 the U.S. economy has been averaging 190,000 new jobs per month.  So this recent news is not reassuring.  It will be interesting to follow total employment over the next few months.


Finally, the labor force participation rate remains at modern historically low levels.  For August, it was just 62.8%.  The LFPR has not been lower since February 1978.


March Jobs Report

The BLS released the March jobs report today and I think the news is positive. Even though the unemployment rate did not fall, it did hold steady at 6.7%. 


I see two pieces of good news in this report.  First, 192,000 new jobs were created in March.  This, along with a total of 37,000 jobs added as revisions to estimates for January and February, means three solid months of jobs growth, averaging 178,000 new jobs over this period.


The second piece of good news is the (moderate) rise in the labor force participation rate, which is now up to 63.2% (up from 62.8% in December). 

All in all, these are the kind of reports we need if the unemployment rate is going to fall back down to a reasonable, natural rate of around 5%.


Unemployment Rate Drops to 6.6%

Today's jobs report brought mixed news.  On the one hand, 113,000 new jobs were added to the economy in January.  On the other hand, the unemployment rate continued its decline, falling to 6.6 percent.  For perspective, note that just one year ago the unemployment rate was 7.9 percent.


One other piece of good news - the labor force participation rate rose slightly to 63 percent.  Perhaps this rate has stopped its decline.


In sum, the labor force grew while the unemployment rate declined.  We need more months like that.

Wait, this is bad news?

The jobs report released last Friday by the BLS reported a drop in the unemployment rate in December from 7% to 6.7%.  The decline is pictured below.


Sounds like really great news, right?  After all, the unemployment rate hasn't been this low in five years!

Still, here are the reactionary headlines in the financial news media:

The financial media got this one right.  Overall, the jobs report brought very bad news.  To understand why, we need to dig a little deeper into the report and reiterate how the unemployment rate is calculated.

First, let's look at another statistic: new jobs created.  Over the past four years, the U.S. economy has added about 130,000 jobs per month.  In December, the number was just 74,000 (see figure below).  This is particularly concerning in an economy that is still recovery from a tough recession.


Yet, even with slower jobs growth, why did the unemployment rate drop so much?  The answer offers a good lesson in how the unemployment rate is calculated.  The unemployment rate is the portion of the labor force that is unemployed.  But in December, the labor force contracted by 347,000.  This. Is. Bad. News. The primary reason the unemployment rate fell is because many people left the labor force, not because they got jobs. This decline in the labor force means that the labor force participation rate is down to 62.8% and hasn't been lower since 1977.

So this is certainly not a positive economic report.  On the other hand, it is only one report and these numbers are difficult to estimate accurately every single month.  Let's hope this month looks significantly better.

Summing up the December jobs report:

  1. The unemployment rate fell to 6.7%, the lowest level in 5 years, but...
  2. Nonfarm employment grew by just 74,000, well off the recent pace, and...
  3. Labor force dropped by 347,000, and this means...
  4. Labor force participation rate fell to 62.8%, the lowest level since 1977.

Unemployment rate drops to 7%

The latest jobs report shows the unemployment rate dropped to 7.0% in November, the lowest level in five years.  In addition, the economy added 203,000 more jobs.


The last time the unemployment rate was this low was in the worst period of the Great Recession.  During the fourth quarter of 2008, the unemployment rate climbed from 6.1% to 7.3%, on its way to 10% by the end of 2009.  During 2009's bleak fourth quarter, real GDP contracted by more than 8%.