One of the key factors in this year’s presidential election will be the state of the economy. Everyone knows it was bad when Obama took office. The question is whether he put into place the policies needed to help it recover. If the economy continues to lag through November, Obama’s chances for reelection look dim. If, however, voters believe that an economic recovery is underway they may decide to give him four more years. That is why economic statistics such as GDP growth and the unemployment rate are so important. Unemployment is a lagging indicator. We would normally expect to see it fall well after economic growth had picked up. The significant decline in the unemployment rate over the past six months is therefore surprising. Does it signal that the economy is better off than we think?
Today’s jobs numbers were not good. On the surface 120,000 new jobs were created and the unemployment rate dropped to 8.2 percent. But a deeper look at the numbers shows significant problems. Although 120,000 new jobs is very good for an economy running at full employment its far below what we would hope for in a recovery, especially after such a steep recession.
But the government actually releases two surveys, one of households and one of establishments. The household report shows that the number of employed workers fell by 31,000. That points to a deeper mystery. According to the household survey, the civilian noninstitutional population (those 16 years or older and not in an institution or on active duty) grew by 169,000 in March. Despite the loss of jobs and the growing number of workers, the number of unemployed persons fell by 133,000. If none of these people got jobs, where did they go? They apparently left the workforce. The number of people over 16 not in the work force rose by 333,000 last month. As a result the labor participation rate fell slightly to 63.8. Yet the number of these people who currently want a job actually fell by 79,000. So while the establishment data point to a mediocre rise in jobs, the household data indicate that we lost jobs and that people may be leaving the workforce for an indefinite period. Some of these may never return. Others may be in school or taking time off. But it is not a good trend.
There is one very important caveat. The numbers above are adjusted for seasonal variations. If we use unadjusted numbers the number of employed workers actually rose by 728,000 the unemployed fell by 526,000 and those not in the labor force fell by 34,000. So the true picture depends a lot on the accuracy of the government’s seasonal adjustments.