Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
This is the Next “Big Thing” in Energy - 24th Apr 14
Rome Wasn't Burnt In A Day - 24th Apr 14
When Does Government Policy Become Criminal Behavior? - 24th Apr 14
The Great Recession Grinds On - Measuring Misery around the World - 24th Apr 14
Apple, Facebook Beat Expectations - Stock Markets Long-term Recap - 24th Apr 14
Broad Stock Market Situation on the Remains Tense as Companies Release Quarterly Earnings - 24th Apr 14
How High-Frequency Traders Use Dark Pools to Cheat Investors - 24th Apr 14
Stock Market Bears Wrong Again, Apple to Push Dow to New All time High - 24th Apr 14
Gold Prepared for the Attack of the Short Sellers - 24th Apr 14
Weak U.S. Housing Data Supports Euro - 24th Apr 14
Killing the Maximum-Wage Myth - 23rd Apr 14
U.S. Quarterly Economic Review - Optimism at the Fed - 23rd Apr 14
Why Mohamed El-Erian Left Pimco - Video - 23rd Apr 14
QE Is A Fraud Perpetrated By Made Men - 23rd Apr 14
Gold and Miners Outperform Once Again - 23rd Apr 14
G-20 and the US Tell the Bank of Japan to End Quantitative Easing - 23rd Apr 14
How to Get in the Trading Game and Profit - 23rd Apr 14
Fed Follies, U.S. Housing Market Fiasco - 23rd Apr 14
What Will December 31, 2014 Financial Headlines Look Like? - 23rd Apr 14
Why Gasoline Prices are Surging Again - 22nd Apr 14
Cold War 2.0 - 22nd Apr 14
The JIS – Junk Ideology Syndrome - 22nd Apr 14
How to Avoid Losing All Your Money - 22nd Apr 14
Silver Up, Stocks S&P Down - 22nd Apr 14
U.S. Mainstream Media Propaganda Setting the Stage for War With Pakistan - 22nd Apr 14
U.S. Interest Rates are NOT Rising! - 22nd Apr 14
A Crisis vs. the REAL Crisis: Keep Your Eye on the Debt Ball - 22nd Apr 14
Bitcoin Implications of Lack of Price Action - 22nd Apr 14
Japan - The Twilight Of The Rising Sun - 22nd Apr 14
Is This What a Credit Bubble Looks Like? - 22nd Apr 14
The Dark Side Of The Silver Mining Industry - 21st Apr 14
Strong U.S. Dollar Rally Could Pull Rug From Under Gold and Silver - 21st Apr 14
Silver Feeble Rally Fails to Hold Breakout, Falling Back Towards Support - 21st Apr 14
Stock Market Smart Money – All Out or More to Go? - 21st Apr 14
Fast Rising Pump Prices Counterattack - 21st Apr 14
Extreme Climate Change And Life On This Planet - 21st Apr 14
Gold and Silver Stocks Sitting Tight - 21st Apr 14
Stock Market Minor Correction Imminent - 21st Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Number of Discouraged American Workers Hit Record High: QE3 = A Matter of When

Economics / Employment Jan 09, 2011 - 08:32 AM GMT

By: Dian_L_Chu

Economics

Best Financial Markets Analysis ArticleThe latest U.S. Labor Department data indicated that non-farm payroll added 103,000 jobs in December, which is far short of expectation, but the unemployment rate somehow managed to fall sharply to 9.4% (from 9.8% in November) far exceeding expectation.


103k Jobs Not Enough To Drop Unemployment Rate

The current consensus is that the U.S. economy would need to create 150,000 to 175,000 new jobs each month in the next 5 years or so, at minimum, just to restore the 8+ million jobs wiped out by the Great Recession.

Since the nation added only 1.1 million jobs in total last year, or averaging 94,000 jobs a month, the 103,000 new jobs added, coupled with a 0.4% drop in unemployment rate in December, simply does not make much sense.

Totally Discouraged

Nevertheless, a closer look at data the Bureau of Labor Statistics (BLS) tells that the drop in unemployment had very little to do with newly created jobs. Instead, it was primarily due to 260,000 workers dropping out of the labor force. As a result, the labor force has shrunk by 246,000 from the pre-crisis 2007 level (The U.S. labor force average growth rate is supposed to be around 0.8% per year from 2000 to 2050, according to Joel Kotkin, a scholar on urban development.)

Furthermore, not only the number of discouraged workers over job prospects hit a record high (since 1994, the earliest year the data is available) of just over 1.3 million (Fig. 1)--more than the number of jobs added in 2010--but the labor participation rate also plunged to a 25-year low of 64.3% ....post-recession! (Fig. 2).

Most Disturbing – Long Term Unemployed

Most disturbingly, the average number of weeks people remain unemployed also has risen to 34.2 weeks in December vs. 33.9 weeks in November, with 6.4 million jobless people classified as long-term unemployed, i.e. without a job for 27+ weeks.

The All Inclusive Jobless Rate Could Be 11%+

All these suggest there is a large number of frustrated workers who left the labor pool but unaccounted for in the unemployment rate calculation. That means the all inclusive jobless rate could easily be 11% or more, instead of the 9.4% flashing in headlines today.

Needed - 300k Jobs Per Month

Overall, the latest employment report seems to reflect a painfully slow-recovering, but still confused labor market. Large corporations are hoarding cash reluctant to hire or invest fearing uncertainties ahead, while small business still strapped for cash and credit can’t afford to hire since business is still slow.

Most economists estimate that that in order to make a meaningful dent in the jobless situation while keeping up with the labor force growth rate, new job creation needs to be at around 300,000 a month going forward, which is a long way from where the economy is right now (Fig. 3).

Worse Before Better

Furthermore, since the long-term unemployment benefits have been renewed, they could bring more people back into the labor force leading to a rise in the unemployment rate. So, things may get worse before they get better, and that Federal Reserve Chairman Bernanke is probably right when he said it could take “four to five years” before the unemployment rate is back to a more normal 5% or 6%.

Housing & Auto - Key To Jobs

On the other hand, the economy could get there a lot faster beating Bernanke's estimate if both housing and auto sectors could really fire on all cylinders, and if the Administration would really start pushing for more jobs-friendly policies and measures, as the presidential re-election is due in 2012.

QE3 - A Matter of When

Moreover, I think with this latest employment report, it looks like QE3 could be just a question of when, and there’s no way Fed would cut QE2 early as some speculated.

That, of course, will evolve into a total beast by itself later on. But we could always remain hopeful that the U.S. labor market and economy would be strong enough to tackle that equally, if not more, daunting challenge.

Disclosure: No Postions

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014