To the untrained eye, there was one seemingly bullish nugget in today’s otherwise lackluster December jobs report — the unemployment rate dropped to 6.7%.
That’s the first time we’ve seen the unemployment rate under 7% since November 2008, when the U.S. was in the throes of a financial crisis that would cripple the economy. Good news, right?
As we’ve explained before, the unemployment rate has ticked down recently thanks to the decreasing labour force participation rate, not an overwhelming boost in jobs. Economists have a few different explanations for the phenomenon, but the two competing theories have to do with ageing versus a crappy economy.
Americans are getting older and retiring out of the work force, which naturally decreases labour force participation. When a bunch of people leave the labour market, the unemployment rate drops, making it a pretty silly indicator for the health of the labour market. As Wonkblog’s Brad Plumer noted in November, economists disagree on how much the graying population is tampering with the rate drop — somewhere between one fourth and a lot.
Take a look at this Reuters chart via Twitter user/trader Reinman_MT. When you combine the unemployment rate with the 30 year average labour force participation rate, it shows a vastly worse employment situation (10.8% unemployment!). It’s not age-adjusted, so we can’t tell how much has to do with demographics versus the economy. It’s still a sobering chart for anyone getting too jazzed about the recovery.
Check it out: