March 2011 Employment Report

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The U.S. economy added 216,000 nonfarm jobs in March, and the unemployment rate ticked down by another 0.1 percentage point to 8.8 percent (the lowest rate since April 2009).
 

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Those upbeat headlines were partially offset by somewhat less encouraging details. For example, the number of persons employed full time was essentially unchanged in March, while the number of persons employed part time for economic reasons nudged higher. This is not the outcome one would expect from an improving economy.

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Despite the upturn in employment, the chart above shows how much ground remains to be regained. That chart tells just part of the story, however, because returning to “zero” means only that the number of persons employed is equal to the peak of December 2007; it does not include the 150,000 persons of employable age added by population growth each month.

As has happened for the past several months, the unemployment rate dropped as much because of the number of people who 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. Here is a simple example of how the unemployment rate can improve as the number of persons not in the labor force rises: If there are 10 unemployed people out of a workforce of 100, the unemployment rate would be 10 percent. If one of those 10 unemployed people stops looking for work the BLS says there are nine unemployed people in a workforce of 99; the new unemployment rate would be 9.1 percent, an improvement from the original 10 percent. If population growth adds two new people to the workforce, and one of the two finds a newly created job, there are now 10 people unemployed in a workforce of 101; the unemployment rate becomes 9.9 percent – still better than the original 10 percent.

Nearly 6.3 million people were not counted as being in the labor force, but would like a job now. Also, the total number of persons not considered part of the labor force remained at a near-record 86.0 million.

Other discouraging aspects of the report included a civilian labor force participation rate that remained unchanged at 64.2 percent (a 27-year low) while the annual percentage increase in average hourly earnings of production and non-supervisory employees fell below 2 percent -- the slowest pace of growth since 2Q2004.