The unemployment rate fell again in December, from a revised 8.7% in November to today’s 8.5%. Since September of this year, the unemployment rate has fallen half a point, from 9%, while the U.S. economy has added only 400,000 jobs. But, according to the Federal Reserve, the U.S. economy must add more than 110,000 jobs a month for the unemployment rate just to keep up with population growth. So if job growth is at a point where we should only be treading water, why is the unemployment rate falling so fast?
The answer is that more and more Americans aren’t looking for work. Our unemployment rate is not dropping due to job creation, it is dropping becauseof workforce attrition. Between December and November, 50,000 Americans dropped out of the civilian labor force. That number was even higher between October and November when 120,000 Americans stopped looking for work.
When President Obama was sworn into office, there were 154.2 million people in the United States labor force. Today there are only 153.9 million. If we had the same labor participation rate today that we did when President Obama first took office, our unemployment rate would be 10.9%.
What is driving the continued shrinkage of our labor force? Is it early retirement? Part time work? Nobody knows.
Whatever the reason, our rapidly declining labor force has been a boon to Obama politically. He can take credit for a falling unemployment without actually creating the jobs that previous administrations needed to achieve similar results. Looking ahead, he could conceivably proceed to election day with both unemployment below 8%, and fewer jobs in the U.S. economy then when he was sworn into office.
