What You Need to Know About April’s Jobs Numbers [View all]

[steve2470]

http://business.time.com/2012/05/04/what-you-need-to-know-about-aprils-jobs-numbers/

Any way you cut it, the Labor Department’s announcement that the U.S. economy added just 115,000 jobs in April is a disappointment. Economists had been expecting 160,000 new jobs, and even that number is far below the kind of growth our economy needs to get back to full strength in the near term. At the same time, the unemployment rate dropped from 8.2% to 8.1%. So what gives? As with any Employment Situation Report, there’s a lot of noise in the numbers. Here are the three things you need to know about April’s jobs report to make sense of it:


1) Labor Participation Rate: The thing to remember about the official unemployment rate is that the Labor Department first has to estimate who is actually in the labor force before they can determine what percentage of people are unemployed. Obviously, your retired grandfather or your college student son aren’t employed. But they aren’t really unemployed either. They’re officially not in the labor force. The thing is that this “labor participation rate,” or the percentage of working-age people who are considered to be in the workforce, has been declining steadily since the recession began.

There are a bunch of folks who are really concerned about this trend, and Republicans have been using this figure to bash the President and the economic recovery. After all, the more people in the labor force, the stronger the economy. And if people are merely dropping out of the workforce, that doesn’t really represent a recovery does it? At the same time, there are reasons to not be so concerned about this trend. The labor participation rate had been dropping even before the recession. Our country is getting older, and therefore naturally our labor participation rate will be lower. And as Matthew Yglesias of Slate points out, America still has one of the highest labor participation rates in the world — much higher than countries like Germany, which are though to have weathered the recession well.

2) Seasonal Adjustments: You don’t have to be an economist to know that we had a very warm winter in many parts of America. And oddly enough, that warm winter may have a lot to do with the strong numbers we saw from December through February, and the weaker numbers we’re seeing now. The thing to remember is that the economy usually adds many jobs during warm weather months and fewer jobs when it’s cold, and the labor department generally adjusts for these idiosyncrasies to make month-to-month comparisons coherent. However, many believe that this year warm winter pulled forward a lot jobs that would have been added this spring, causing seasonal adjustments to exaggerate the job numbers in the winter; by the same token, seasonal adjustments may be suppressing the more recent numbers. These factors balance out in the long run — see below — but because everyone is watching the trend lines, they’re arguably creating the illusion that the recovery is losing steam.

*more at link above*