Unemployment Rose in December, “Detachment from Reality Index” Hits Record Level


The Labor Department reported on Friday (see the above link to the report) that the economy added 252,000 jobs and that unemployment fell by two tenths to 5.6% in December.  But the report wasn’t all good news.  Analysts noted that hourly earnings actually fell by five cents in December.  And the labor force participation rate fell too.  (Here’s a chart:  Per Capita Employment.)

When you look more closely at the details, you begin to understand why earnings and the labor force participation rate fell (signs of a weak labor market) when the other headline numbers were so good.  The following is the bad news that escaped the headlines:

  • The employment level – the number of people employed according to the household survey (and not the establishment survey which produced the 252,000 jobs figure) – rose by only 111,000 – the second consecutive month that that figure was weak, following growth of only 71,000 in November.
  • The decline in unemployment was once again due to the “smoke and mirrors” tactic of claiming that 273,000 people actually left the work force in December, in spite of the fact that population growth actually adds about 100,000 workers per month.  (If the Labor Department is to be believed, the labor force is actually smaller than it was in March.)
  • Not included in the employment report is the fact that the Census Bureau did a correction to its estimate of the U.S. population in December, resulting in a population that grew by 610,000 in December instead of the usual monthly growth of about 200,000.

Roll the above factors together and you find that the number of unemployed Americans actually grew in December:  Unemployed Americans.

A more accurate gauge of unemployment – one in which the labor force grows along with a growing population – shows that unemployment actually rose by one tenth to 9.3% unemployment in December.  Because of this, my unemployment “detachment from reality index” (the difference between an accurate gauge of unemployment and the official number) actually hit a new record in December.  Here’s the chart:  Detachment from Reality Index.

Recent economic data (like durable goods orders, mortgage applications, housing starts and manufacturing activity) have hinted at a cooling economy.  More evidence of this is found between the lines in Friday’s December employment report.

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