Latest Jobs Reports Shows U.S. Economy Is Barely Treading Water

The stalled labor market reminds us how little progress we’ve made.

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Keith Hall is a senior research fellow at the Mercatus Center at George Mason University. Hall served as the 13th commissioner of the Bureau of Labor Statistics from 2008-2012.

Friday's jobs report from the Bureau of Labor Statistics was the first major release of economic data for the second quarter of this year.

Payroll job growth essentially stalled in April, falling to just 115,000 new jobs for the month. This is the second straight month of slowing job growth. With a rate that is slightly below what is required to keep up with population growth, the economy  is now "treading water" at best.

[See a collection of political cartoons on the economy.]

The most significant news from Friday's report was the continued fall in labor force participation. Due to this disengagement,  the slight drop in the unemployment rate from 8.2 percent to 8.1 percent was actually a false signal.  It was more bad news rather than good. To understand this, you need to first understand how the unemployment rate is calculated.

If you worked even one hour, and received any pay at all, you are considered employed.  If you aren't employed, but available to work, and have attempted to get a job over the prior four weeks, you are considered unemployed. If neither of these applies, you are not considered part of the labor force, and are not counted in the unemployment rate. No matter how much you want to work or how hard you've tried to find a job, if you stopped searching in the past four weeks for any reason, then you weren't one of April's 8.1 percent unemployed. This explains why a lower unemployment rate doesn't necessarily mean there are more people employed.

In April, there was an increase of half a million people without jobs who disengaged from the labor force. This fact can claim responsibility for both the 0.1 percentage point drop in the unemployment rate, and preventing an unemployment rate increase to 8.4 percent for April.

[When An Unemployment Rate Decline is Bad News]

April was a great illustration of what has happened in the labor market over the past couple years. In October of 2009, the unemployment rate peaked at 10 percent.  If you noticed that the unemployment rate has improved significantly since then—falling to its current 8.1 percent—and saw that nearly 3.5 million jobs have been created, you might conclude that we've had significant economic recovery since then. You would be wrong.

Job growth has averaged about 115,000 jobs per month since 2009—which is barely enough to keep the economy's head above water. Since the start of the recession we have also encountered the largest disengagement from the labor force in more than 60 years. This decline in labor force participation (from 65.7 percent to 63.8 percent) represents about 3.7 million jobless that are no longer counted in the unemployment rate. Unfortunately, labor force disengagement is entirely responsible for the nearly 2 percentage points decline in the unemployment rate from 10 percent to 8.1 percent.

[See a photo gallery of Americans searching for work.]

The unemployment rate is the most widely used and reported indicator of the health of labor markets in the United States and around the world.  It has, however, very significant and well-known limitations that have never been clearer than they are now.  Despite its decline, we have not made significant progress towards a healthy labor market and may have a long, long road ahead to a full recovery.

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  • Corrected on : Corrected on 5/7/2012: A previous version of this blog post misstated the drop in the unemployment rate in April. It fell from 8.2 percent to 8.1 percent.