The Incredible Vanishing Labor Force

So there is joy at the White House. The unemployment rate dropped to 7.6 percent in March from 7.7 percent in February. That is the headline, but as Paul Harvey would say, "Now the rest of the story." Incredibly, the unemployment rate went down although the number of people employed fell by 206,000. How is this possible, one might reasonably ask. Very simple. The number of people working or looking for work-the labor force-fell by 496,000 (the number of people not in the labor force jumped by 663,000). By the Labor Department’s calculation that brings the number unemployed down by 290,000. Ergo, the ratio of unemployed to the labor force dropped. Just a matter of mathematics.

The labor force participation rate, the ratio of those in the labor force to the civilian non-institutional population, dipped to 63.3 percent from 63.5 percent in February-already one of the lowest in decades.

Meanwhile, the number of people with jobs as measured by the survey of establishment payroll counts rose by a scant 88,000 in March with widespread weakness in goods production-manufacturing was down by 3,000 jobs-and service producing employment. Retail jobs tumbled by 24,100, finance was lower, leisure and hospitality was down along with transportation and warehousing. Only the education and health services component and professional and business services demonstrated any significant strength, accounting for over two thirds of all the net increase in payroll employment.

This is clearly a very disturbing jobs report from both the household survey, from which the labor force and unemployment rate data are derived, and the establishment survey that measures the number of paying jobs as opposed to the number of people working or looking for work.

There can be little credence put in claims that the economy is picking up steam, notwithstanding the massive fiscal and monetary stimulus being applied in Washington. There is little doubt that the effects of the tax increase in January and the impacts of the Affordable Care Act along with torrent of regulations emanating from DC are having a chilling effect on the economy.