Unemployment Rate Falls to 8.6%, Lowest and 2 1/2 Years: What’s behind the Numbers?

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The economic recovery has solid roots: The December unemployment report is an encouraging sign that the economic recovery is solid. This is particularly important given the triple threat to economic growth caused by the European debt crisis, the inability of Congress to reach a compromise on the debt, and the lack of confidence of investors and consumers in the US.

The most important implication: The economy continues to grow despite the triple threat. The number of jobs created is still less than what is needed to reduce unemployment significantly, but it is high enough to encourage investor and consumer confidence.

The economy created 120,000 jobs: The storyline is not that the economy is doing so great, but more importantly it did not disappoint. Economists had expected about 125,000 jobs. They got what they expected. The amount of jobs created was slightly above the number created in October (which was revised upward to 100,000). This is a continuation of a positive trend.

The decrease in the unemployment rate was caused by new jobs being created and by workers dropping out of the labor market (the labor force decreased by 315,000 workers): The decrease in the unemployment rate is a cause to celebrate, however it was not caused completely by growth in jobs. One concern is that it was also caused by workers dropping out of the labor market. In a healthy economy, the size of the workforce increases rather than decreases.

Most notable favorable trends:

  • The unemployment rate decreased from 9% to 8.6%
  • The number of under-unemployed workers decreased by 378,000 (i.e. part-time workers)
  • Long-term unemployment decreased by 185,000 (persons unemployed more than 27 weeks)
  • The total number of unemployed workers decreased by 594,000 (to 13.3 million)
  • 140,000 new private sector jobs were created, continuing the trend of job growth.
  • The government sector subtracted only 20,000 jobs

Most notable unfavorable trends:

  • The economy needs to create more than 120,000 jobs each month
  • The labor force shrunk by 315,000 workers. This partly explains why the unemployment rate declined. In a growing economy, the civilian labor force increases.
  • While unemployment among whites decreased from 8% to 7.6%, unemployment among blacks increased from 15.1% to 15.5%.
  • The number of discouraged workers increased by 185,000
  • The number of manufacturing jobs barely changed and the number of construction jobs decreased

               

Last modified: June 20, 2017

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