BLS Unemployment Report Doesn't Add Up

On the surface, the Bureau of Labor Statistics delivered a head-scratcher of an unemployment report this morning: An anemic 103,000 new jobs in December, but a dramatic fall in the U-3 unemployment rate from 9.8% to 9.4%.

Let’s dive into the particulars:

  • Private-sector employers added 113,000 jobs, the bulk of the gains coming in leisure/hospitality and health care
  • The federal government added 10,000 jobs, while state and local governments cut 20,000
  • The underwhelming November figure of 39,000 new jobs overall was revised to a merely whelming 71,000
  • U-3 unemployment is now the lowest since May 2009
  • U-6 unemployment, including part-timers who want to work full-time, fell from 17.0% to 16.7%.

So… How does the unemployment rate fall so dramatically when job growth is still subpar?

Here’s your answer – a chart that shows the percentage of working-age population in the labor force. It fell to 64.3% last month – a level last seen when Christopher Lloyd was taking moviegoers Back to the Future:

Civilian Labor Force Participation Rate, 1960-Present

Herein lies one of the Bureau of Labor Statistics’ favorite tricks. If you gave up looking for work more than a year ago, you’re no longer counted as part of the labor force. Thus, employers added only 103,000 jobs in December…but incredibly, we have 556,000 fewer unemployed people!

And there you have it – headline unemployment fell to its lowest in 20 months because more people gave up looking for work. Big problem for Uncle Sam, because that means more people with no income to tax.

Our call last month – a federal deficit easily exceeding White House estimates of $1.4 billion – is looking more and more likely.

Dave Gonigam
for The Daily Reckoning