There was a small reduction in the unemployment rate today, from 8.5% in December to 8.3% in January, and the media is championing the fact that this is the fifth month in which there’s been a decline.
The U.S. job market strengthened at the start of the year as employers added an unexpectedly large number of new jobs and the unemployment rate in January dropped for the fifth straight month to 8.3%–the lowest in nearly three years.
The Labor Department said Friday that employers nationwide added 243,000 net new jobs in January – about 100,000 more than what analysts were forecasting. Job gains were broad-based, powered by increases in manufacturing, professional and business services such as accounting and engineering, and in leisure and healthcare industries.
Superficially this all sounds very nice, but a closer look at the numbers shows us that this is statistical static. The real economic picture isn’t improving.
The economy may have added 243,000 new jobs, but some 1.2 million workers dropped out of the labor force (meaning they were no longer counted against the unemployment rate). According to Zero Hedge, that’s an unprecedented and record-setting one-month number for labor force shrinkage.
The labor participation rate is now at a 30-year low of 63.7% (click for a larger view):
The economy isn’t improving. The only reason the unemployment rate is going down is because people are giving up looking for jobs.