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U.S. Unemployment Rate Falls to 9.4%, But Underlying Improvement Is Limited

| January 7, 2011

us unemployment december 2010

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The U.S. economy added 103,000 jobs in December, well below expectations of 150,000 new jobs (by a Wall Street Journal consensus of economists and analysts), but the unemployment rate fell from 9.8 percent to 9.4 percent. The numbers are somewhat deceptive. While the trend is positive, with about 1 million private-sector jobs created in 2010, day-to-day conditions are still bleak for more than 14.5 million unemployed. Those numbers are not decreasing significantly.

The rate’s decline is due to two factors: job-creation figures for October and November were revised upward, adding 70,000 jobs to the two-month tally, for a net, three-month total gain of 384,000. Another reason for the decline in the unemployment rate is deceptive: There were 1.3 million workers the Labor Department categorizes as “discouraged,” meaning they had quit looking for work. Those workers are not included in the unemployment tally, yet the number of discouraged workers soared by 389,000 in December alone. If that figure were included in the unemployment rate, the rate would not have improved as it did. Overall, 2.6 million workers are only marginally attached to the labor force. Whether marginal or discouraged, the Labor Department doesn’t include those workers in its overall unemployment-rate tally, thus further clouding the true unemployment rate. Some 6.4 million workers have been out of work 27 weeks or more, a huge surge, since mid-2007, from the more normal 1 to 2 million rate earlier in the 2000s. That number rose by 113,000 in December.

The underemployed also cloud the true unemployment rate. Some 27.1 million people are employed part-time. They count as full-time workers in the unemployment tally. In other words, they don’t add to the unemployment rate, even if they’re employed 1 hour and aren’t making ends meet. (The part-time category applies to anyone working from 1 hour to 34 hours.) Among those 27.1 million part-time workers, 8.9 million are employed part-time involuntarily: either their hours have been cut back, or they haven’t been able to find full-time work. Again, those figures depress the overall unemployment rate considerably, and deceptively.

“In the month President Obama was inaugurated, the economy lost nearly 800,000 jobs. In 2010, every single month posted private sector job growth, with well over a million jobs added throughout the year,” Labor Secretary Hilda Solis said on Friday. While few job losses on Obama’s watch are the result of his policies, the anemic recovery is in part the result of those policies. Since the month Solis pointed out, the economy has lost a net 3.6 million jobs. It would take 7 million new jobs just to return to the December 2007 level, and many more jobs to lower the unemployment rate back to the 3 to 4 percent range.

Economists predict a growth rate of between 3 and 4 percent for 2011, which would, if true, yield stronger job creation.

“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” Ben Bernanke, chairman of the Federal Reserve, told the Senate Budget Committee Friday morning, shortly after the unemployment numbers appeared. He attributed gains to more consumer spending (although December’s holiday shopping spree proved less stellar than originally reported) and business investment in new equipment and software. But housing and labor markets are not improving. “It could take four to five more years for the job market to normalize fully,” he said–which could have dire consequences on political fates around Washington.

Here’s how the economy performed in the fine print in December: Leisure and hospitality picked up 47,000 jobs, health care picked up 36,000, professional and business services added 16,000, retail just 12,000 and mining and manufacturing 15,000. Construction fell 16,000, including a 6,000 loss in residential construction. Federal, state and local governments continued to shed jobs.

The average workweek for all employees on private nonfarm payrolls held at 34.3 hours in December. The manufacturing workweek for all employees declined by 0.1 hour to 40.2 hours, while factory overtime remained at 3.1 hours. The average workweek for production and non-supervisory employees on private nonfarm payrolls increased by 0.1 hour to 33.6 hours. Average hourly earnings for all employees increased by 3 cents, or 0.1 percent, to $22.78. Over the past 12 months, average hourly earnings have increased by 1.8 percent. Average hourly earnings of private-sector production and nonsupervisory employees rose by 2 cents, or 0.1 percent, to $19.21.

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12 Responses for “U.S. Unemployment Rate Falls to 9.4%, But Underlying Improvement Is Limited”

  1. Flagler Citizen says:

    Just more “smoke and mirrors”. As is outlined, people who are unemployed but give up looking for work are no longer counted among those “unemployed”. Why?

  2. DLF says:

    I love the spin the goverment places on this number. It was better than two years ago but not as good as three years ago. We will count some of you who are looking but not the ones who have stopped looking, how to they know the difference, the job rate went up last month but down in November, we think. The bottom line is like everything our goverment touches it screws it up. How is hope and change working out for you, it depends on who is asking and what day of the week they are asking and how the news media decides they want to report it.

  3. Charles Ericksen, Jr says:

    Figures don’t lie, but liars figure.


    Add the 50 people that got downsized at Palm Coast Data on Thursday with more to come !

  5. Kyle Russell says:

    The idea behind not counting those not looking for work as unemployed makes sense in the case of people who go back to school, or retire.

  6. DLF says:

    Kyle: how do you know who and how many that is? Just another ploy by the goverment to make the number look godd and show they are doing their job.

  7. Gervais says:

    They Should bring back the Civilian Conservation Corps, at least a modernized version of it.

  8. Kyle Russell says:

    DLF: They base the number of of those collecting unemployment insurance. If you stop collecting it and don’t have a job, then you are no longer considered looking for work (as you are supposed to be looking for work while you collect unemployment).

    Also, they’ve been using the method for quite some time. It’s not hiding anything, as anyone who cares will look at the other numbers, such as the discouraged workers we have mentioned as well as the employment-population level and the labor force participation rate. A good source for such info is the blog Calculated Risk, as they summarize the information from the BLS is a readable way.

  9. Gervais says:

    DLF just got schooled by a teenager! Nice!

  10. Nick says:

    Kyle… how do you account for the people who are looking for work and yet (even under the extension) are no long eligible for unemployment benefits? They are still unemployed and looking for work but are not counted because they no longer receive unemployment benefits… (the 99ers).

  11. Jack says:

    Fact: the jobless rate is calculated based on survey data, not the unemployment insurance rolls. Roughly one-third of the nearly 15 million unemployed are not receiving benefits in the first place.

    Each month the Census Bureau conducts a survey of 60,000 households. Each household provides labor force information on each member of the household. Everyone unemployed is counted as unemployed, no matter how long they have been unemployed. The survey does not ask about unemployment insurance benefits. Not all of those people will be “99ers,” since 99 weeks of benefits are available only in about half the states.

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