December Unemployment Drops to 8.5%, Work Force Shrinks Again

The December unemployment report was released by the Bureau of Labor Statistics this morning.  As with November, it’s a mixed bag that will be widely reported as joyous good news. 

The marquee number is the official, heavily massaged unemployment rate, which fell from 8.7% to 8.5%.  It’s sad that we’re expected to celebrate 8.5% unemployment at the height of the holiday season, but in fairness, we’d have to pass through 8.5% unemployment on our way back to decent numbers, so it’s movement in the right direction.  This is the lowest rate since February 2009.

The real unemployment rate – the U-6 metric that we should be paying attention to because it includes the under-employed and long-term unemployed – also fell, from 15.6% to 15.2%.

There were actually 212,000 private-sector jobs created in December, accompanied by a loss of 12,000 government jobs.  That’s a lovely trend.

Now for the bad news.  First, according to the BLS report, “The change in total nonfarm payroll employment for October was revised from +100,000 to +112,000, and the change for November was revised from +120,000 to +100,000.”  So October got better, November (which we were told to celebrate as a big turning point for the economy) got worse, and the net effect is 8,000 fewer jobs in the 3rd quarter.

There were 200,000 jobs created in December, the best number in a long time, and better than early projections anticipated.  Some media reports are celebrating a six-month streak in which more than 100,000 jobs were created each month, the first time that’s happened during the Obama Recession.  That’s good, but 100,000 is an arbitrary number that just happens to look nice because it contains an extra zero. 

The number that has real meaning is the number of jobs needed to keep pace with population growth.  This number varies over time, and different analysts calculate it in different ways, but it’s somewhere in the neighborhood of 120,000 jobs per month for 2011.  (It will decrease in coming years, as U.S. population growth is slowing.)  Since November just got revised down from 120,000 to 100,000 jobs created, December is the first month we’ve had in a while that crossed the threshold.  Average job creation for the year will end up in the vicinity of 130,000 per month, which is just a little more than population growth.  At that pace, it would take decades to recover the jobs lost in the last recession.

Of the 212,000 private-sector jobs created in December, the largest gain came from transportation and warehousing, particularly couriers and messaging, which added 42,000 jobs.  Retail stores posted the next largest gain, at 28,000 jobs.  These sectors enjoy large seasonal bounces, to be expected at the end of the year.  The next few months will see many of those seasonal positions come to an end, and an economic slowdown is anticipated in the spring and summer, along with the looming threat of big trouble in the Eurozone.

Most importantly, and sure to be mentioned last in news accounts, the workforce contracted again.  50,000 people left the workforce entirely, accounting for a good bit of the reduction in the overall unemployment rate.  If the economy picks up, many of those people will begin looking for work again… which will, paradoxically, cause the unemployment rate to spike, unless things are really booming.

Bottom line: The private sector created 212,000 jobs, many of them seasonal.  Government lost 12,000 jobs, and 50,000 people dropped out of the labor force completely.  Good news, but not great.