Employment Euphoria

The US December employment numbers present a confusing picture in that “official US unemployment” fell to 6.7% from November’s 7% level whilst non-farm payrolls growth, the best guestimate on the number of jobs created, came in at 74,000, the smallest growth since January 2011, against the way-out consensus forecast of 197K, albeit the NFP number is notoriously unreliable and prone to fairly large revisions. For example, November’s 197K non-farm payroll was revised higher to 241,000.

But even allowing for this, a swing of 167,000 jobs between November and December, usually a time of seasonal hiring, suggests that something else is going on hence it’s worth a dig deeper within the numbers.



The first chart compares the unemployment rate against the non-farm payrolls and you may note that the unemployment rate has been inverted to better show the correlation between them, more jobs should equal lower unemployment and vice-versa.

However, note the “rolling over” of the non-farm payrolls since the spike to 521,000 back in May 2010, whilst the unemployment rate has trended consistently lower (remember it’s been turned upside down.) So what gives?

A look at the “Labour Force Participation Rate,” defined as the total labour force as a percent of the working age population,  shows a fresh 35-year low of 62.8% of the workforce actually in work, as more and more Americans have given up looking for work or perhaps work within the black/informal economy.

In fact, by inverting the unemployment rate once more, one can note an inverse correlation between the two, which would actually suggest that the true unemployment rate is closer to 11% than the 6.7% stated. It’s also closer to the U-6 unemployment rate which includes discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment, currently put at 13%.



So it’s not a time for euphoria as 91.8m Americans are not in the labour force and the number continues to grow, a truly scandalous number.



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