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Unemployment Drops But Economy Adds Fewer Jobs Than Forecast

Friday, January 07, 2011

Chalk up the December jobs report as another “good, but” story that has come to dominate the theme of economic stories over the past year.

The Labor Department reported that 103,000 jobs were created last month. For the year, the total payroll increased by 1.1 million.

“The underlying trend is accelerating, but progress is quite slow,” wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics.

In a separate survey, the government reported that the unemployment rate dropped from 9.8 percent to 9.4 percent, the lowest level since May 2009. The drop, the biggest in more than a decade, left many economists searching for explanations.

While the number of unemployed people fell by 556,000, there was also a drop in the overall workforce.  That indicates people out- of-work simply stopped looking for jobs last month.  To be considered unemployed, people without jobs have to be actively looking for one.

“Lower unemployment rate [is] a mixed blessing since the participation rate fell as the labor force declined,” wrote John Silvia, chief economist at Wells Fargo.  “Yes, we are getting more people employed but we appear to be losing people into the woodwork—not a good sign long term.”

The private sector was responsible for all the job growth in December, adding 113,000 jobs. Sectors that saw increases included leisure, hospitality and health care. 

Government jobs were cut by 10,000. Since December of last year, more than half a million jobs have been lost in the public sector, largely at the state and local level.

Economists say 150,000 jobs need to be created each month to keep unemployment from rising. But with the unemployment above 9 percent for all of 2010, economists forecast job creation must consistently exceed at 200,000 jobs to bring down unemployment.

The next jobs report is scheduled to be released on Feb. 4.

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