Snap analysis: The incredible, shrinking U.S. workforce

WASHINGTON Fri Jan 7, 2011 9:20am EST

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WASHINGTON (Reuters) - Even the "good" news had a dark lining in Friday's U.S. employment report.

The unemployment rate dropped to 9.4 percent in December, even though employers reported hiring a disappointingly skimpy 103,000 new workers.

But the reason for the big drop from 9.8 percent in November is somewhat disconcerting. While the Labor Department's volatile survey of households showed employment surging by 297,000, the labor force shrank by some 260,000.

Even though the U.S. economy added jobs in every month in 2010, hundreds of thousands of people gave up looking for work. The number of discouraged workers climbed to 1.32 million in December, from 1.28 million the month before.

In order to be counted as unemployed, people must be actively looking for work, so the rise in the ranks of discouraged workers has the somewhat perverse effect of helping to bring down the jobless rate.

WHERE DID THEY GO?

* The labor force participation rate, a measure of how many potential workers are actually in the job market, dropped to 64.3 percent, yet another fresh cycle low.

* The fact that it continues to worsen 18 months after the recession officially ended is troublesome. It suggests a large swathe of the population has given up.

* Broken down by education, the biggest drop in participation was among those with less than a high school diploma. Just 46 percent were actively part of the labor force, down from 46.6 percent a month earlier.

* Contrast that with those who have at least a four-year college degree. The participation rate rose to 76.9 percent -- and the unemployment rate dropped. That means hiring was strong enough to absorb the growing labor pool.

WHERE ARE THE JOBS?

* The private sector added 113,000 jobs last month, far short of expectations for 180,000. Some had looked for an even bigger jump after a private forecast from ADP on Wednesday showed huge gains. On the bright side, nonfarm payrolls in October and November expanded by a net 70,000 more jobs than previously believed.

* What hiring occurred was concentrated in healthcare and leisure. The former added nearly 36,000 jobs and the latter 47,000.

* Continuing a pattern seen in recent months, there were signs of a pickup in discretionary spending. Food and drink establishments added 24,500 jobs and retail gained 12,000, reversing at least some of November's decline.

* In another recurring theme, government payrolls declined yet again. Local governments cut 20,000 jobs, evidence of budgetary strains.

(Editing by Chizu Nomiyama)

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