January 2011 Employment Report

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The U.S. economy added a disappointing 36,000 nonfarm jobs in January, yet the unemployment rate fell by 0.4 percentage point to 9.0 percent. More positive elements from the employment report include an uptick (612,000) in the number of full-time employees, and a decline of 524,000 in the number of persons working part time for economic reasons.
 

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One should not put a great deal of confidence in this employment report because the Bureau of Labor Statistics (BLS) applied both population and employment benchmark adjustments to the data. Because those adjustments were not similarly applied to the December data, month-to-month changes are not all that meaningful. Edward Harrison discussed these adjustments and their implications in much greater detail. What is disturbing about the benchmark revision is that the BLS now estimates 215,000 fewer jobs were created in 2010 than originally estimated.
 

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As has happened frequently in the past, the unemployment rate dropped because of the statistical adjustments mentioned above, and because more people gave up looking for work and thus were no longer considered officially unemployed. I.e., the improvement occurred not because of a wholesale jump in hiring, but rather because so many people dropped out of the system. Obviously, this is not a healthy trend, especially for an economy supposedly in recovery.

Other discouraging aspects of the report include a civilian labor force participation rate of only 64.2 percent (a 27-year low), and a record-high 6.64 million people (a jump of 431,000 from December) who are not counted as being in the labor force, but would like a job now. Were that latter group included in the unemployment rate calculation, the rate would jump to nearly 13 percent.