Smoke and Mirrors: What You Don’t Know About Unemployment Figures

America got some good news for the first week of the new year – the unemployment rate dropped from 9.8% to 9.4% for December, the lowest since the spring of 2009. However, if the news was so great, how come no one was celebrating? And just as expected, the main stream media reported this as good news and indicative of an economy on its way to recovery, instead of what it really is…

…that more people have just quit looking for a job.

The rate depends on participation

There are two statistics that go into formulating the unemployment rate: the number of unemployed people compared to the number of people in the labor force. The number of unemployed is actually the number of folks actively looking for a job. If a person quits looking, then he drops out of the statistical analysis.

The following chart from CalculatedRisk.com gives us the real skinny on what’s happening in our labor market.

What this chart tells us is that the decline in the unemployment was because the participation rate declined (blue line), not because the employment actually increased (black line). In fact, if you look at the black line, since January of 2007, we’ve seen a contraction in the jobs market. What this chart doesn’t tell you is that the greatest decline in participation was in the 16-24-year-old age bracket. Another group that saw a significant decline in employment was men ages 25-54.

According to the labor department, the modest 103,000 person “gain” in the market was due to hospital and hospitality services. State and local governments are continuing to cut their workforces. Many were expecting (hoping) for at least 150,000 jobs increase in December, but this weak showing is all the more indicative of a faltering economy.

Politicians want to point their fingers to continually-rising private sector “growth”, but it’s all a game of smoke and mirrors. The normal unemployment rate for the United States is around 5%. Ben Bernacke claims that we can return to that in about 4 or 5 years. However, economists show that in order to do so, the private sector is going to have to hire a minimum of 335,000 people a month to reach that goal.

In 2008-2009, the United States economy shed over eight million jobs, and only a little more than one million were recaptured last year. However, because of the increase in our population, we need even more jobs to get to previous unemployment levels. About 125,000 additional jobs need to be added each month just to factor in an increasing population, and that doesn’t take into account the 335,000 needed to bring unemployment under control.

The bottom line is this – the economy is not rebounding any time soon, no matter what your congressmen, senators, and the president says. Until we get this deficit under control, until real jobs begin to surface in industry and we bring more of our outsourced jobs back within the confines of United States borders, and until we shed ourselves of the shackles of government regulation, taxes, and fees, we may not see an economic prosperity as we’ve all grown accustomed to enjoying.

The American dream seems determined to remain the American nightmare.