The December jobs report contained some good news. For instance, it revised the November report, which now shows that the economy added jobs in that month for the first time in two years.
Overall, however, the report is quite disappointing. Here, from the Washington Post’s account, is perhaps the most important development reflected in the December report: “The unemployment rate was unchanged, but economists suspect this is only because hundreds of thousands of frustrated workers stopped looking for jobs.” Those who aren’t seeking employment are not counted as unemployed.
The decline in labor force participation has several implications. First, it reflects a deep pessimism about the labor market by those who truly follow it for a living — people who don’t have jobs.
Second, and this implication is largely cosmetic and political, it means that the unemployment rate is not likely to decrease as much as many have expected it to over the next few months. Overall job growth may well return to positive territory before long (as it did in November). But when this happens, workers who stopped looking for jobs will begin looking for them again, competing with those who never stopped participating in the labor force. Thus, the increase in the number of jobs probably will not be reflected in a decline in “unemployment,” as it is defined by the government.
In other words, even if there’s a signficant recovery, the unemployment rate probably will continue to be quite the lagging indicator.
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