The 8.3% Unemployment Mirage
Wall Street and Major Media were doing high fives and feeling warm and fuzzy after news that 243,000 jobs were added to the economy in January lowering the unemployment rate to 8.3% down from 9.1% in August 2012.
But there’s a fundamental problem with that 8.3 number. It’s a mirage or at best it paints a very fuzzy picture.
I’m not suggesting the number isn’t real. It just doesn’t tell the whole story, because that story isn’t politically appetizing.
According to the Bureau of Labor Statistics the real indicator as to how many Americans are working or not is the Labor Force Participation Rate. The labor force participation rate is the percentage of working-age persons in an economy who are employed or are unemployed but looking for a job. Typically “working-age persons” is defined as people between the ages of 16-64. People in those age groups who are not counted as participating in the labor force are typically students, homemakers, and persons under the age of 64 who are retired. In the United States the labor force participation rate is usually around 67-68%. This figure can dramatically affect the “Unemployment Rate” often touted by media and politicians as the leading indicator of the health of the economy.
Well, the number of people no longer in the workforce just launched upward like a rocket.
It appears that the people no longer in the labor force exploded by an unprecedented record1.2 million in January. These are people who have stopped looking for work. The labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, the number of people not in the labor force surged from 86.7 million to 87.9 million. The bottom line? The civilian labor force just took a nose dive to a new 30 year low of 63.7% and the BLS is planning on eliminating nearly half of the available labor pool from the unemployment calculation.
When you don’t count 1.2 million people to get to your 8.3% unemployment rate…well, you see what I mean?
Now some of the drop off is due to baby boomers retiring and younger workers going back to school, but that can’t account for 1.2 million people. Many are just people who’ve become discouraged after months or even years of looking and quit. Since they’re no longer receiving unemployment benefits they simply aren’t counted in the unemployment figures.
It’s an election year. Don’t expect this mirage to dissipate any time soon.
- Record 1.2 Million People Fall Out Of Labor Force In One Month, Labor Force Participation Rate Tumbles To Fresh 30 Year Low (zerohedge.com)
- Implied Unemployment Rate Rises To 11.5%, Spread To Propaganda Number Surges To 30 Year High (zerohedge.com)