The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.
Hmmmm…… let’s see. First, all those people talking about +500,000 are now cleaning the egg off their own faces, and I suspect their clients are going to be quite angry at the “error.” If you recall on Wednesday I said that due to the ISM Services report, which showed much weaker employment demand than the ADP report, I was not going to believe the ADP number. That turned out to be a very good call, despite the catcalls it generated.
Second, the internals are a surprise. But are they the surprise that they appear to be?
Careful with any sort of bullish interpretation of this. Here’s the problem:
The number of unemployed persons decreased by 556,000 to 14.5 million in December, and the unemployment rate dropped to 9.4 percent. Over the year, these measures were down from 15.2 million and 9.9 percent, respectively. (See table A-1.)
This is good, right? It should show up in the ratios.
The civilian labor force participation rate edged down in December to 64.3 percent, and the employment-population ratio was essentially unchanged at 58.3 percent. (See table A-1.)
This chart shows the particulars you need to pay attention to out of this report:
Note that the annualized (y/o/y change) is positive – that is, compared to last December, we added employed people. Compared to last month we did not – the monthly change has been negative since the summer, and in fact the trend has been down since the start of 2010. There is no trend-level improvement – to the contrary, the trend delta is negative and has been for a year. So-called “stimulus measures” (including The Fed’s games) have not worked.
Looking at the monthly “employed” numbers are even worse. Those peaked in the spring of 2010 and are declining. Yes, including this last month.
Then there’s the “Not In Labor Force” graph:
This is trouble. On a monthly basis this has been positive since early in the spring of 2010. That’s where the employed number decrease has come from – remember, the government doesn’t count those who give up as “unemployed.” On an annualized basis this number has flatlined at a small positive level since January of 2010. You cannot recover in the economy from an employment perspective until those who have given up come back into the labor force. Period.
Finally, there’s this chart, which is the one that keeps me up at night
After improvement in the early part of 2010, the employment rate of the population (that is, the number of employed as a percentage of the non-institutional adult population) has been deteriorating once again. I noted this last month (and have been highlighting it since it turned back down in the summer) as it is the most-important statistic in the series.
As I’ve repeatedly explained we cannot keep funding government expenditures via taxation unless this turns upward. We are instead, in this alleged “recovery”, threatening the lows.
There is in fact no “recovery” – all we’re doing and all we’ve been doing is putting our economy on the government Credit Card, but these machinations are failing to produce a response in the private economy that will be able to lift tax revenues and ultimately permit reduction in the deficit spending via “growth.”
We have spent more than two years now on a failed policy, and despite the alleged “ordinary lag” that these policy moves have, which has been the excuse of Bernanke and other policy makers to explain away why there was no immediate response, the six month to one year lag time they usually cite has now been exceeded by more than twice.
It is imperative that we change course – these policies have in fact failed and we are now tightening the flat spin with continued attempts to do that which has proved to not work.