The Bureau of Labor Statistics released its unemployment number for January last Friday and the headline came in at 8.3 percent. Let's be clear—that's not a bad thing. Especially being down from 9.1 percent last year. And it sure is going to make it challenging for the Republican's to criticize President Obama's economic prowess. But once again, this unemployment report is not all that great when digging behind the headline statistic.
The good news is that were are 1.2 million fewer unemployed people in January 2012 than in January 2011. The band news is that while the labor force has grown from 153.3 million to 154.4 million from January 2011 to January 2012, the labor force participation rate has fallen from 64.2 percent to 63.7 percent over that same time frame. That means there are fewer people listed as unemployed this year as there would have been if we has the same rate of civilians seeking employment or employed. The number of people who currently want a job has only fallen from 6.412 million to 6.319 year over year. And there are more people not in the labor force this year (87.87 million) than last year (85.45 million). (See BLS Table A-1 for all of these numbers.)
What does this mean for the unemployment headline figure? The Congressional Budget Office estimates that if we were to factor those individuals who have left the labor force for reasons other than retirement or average attrition, that the rate of unemployment would be 1.25 percentage points higher—i.e. 9.6 percent unemployment. From the CBO Budget Outlook released on January 31:
Had that portion of the decline in the labor force participation rate since 2007 that is attributable to neither the aging of the baby boomers nor the downturn in the business cycle (on the basis of the experience in previous downturns) not occurred, the unemployment rate in the fourth quarter of 2011 would have been about 1¼ percentage points higher than the actual rate of 8.7 percent. (See page 37.)
Obviously they were working off of the December 2011 number, and the estimate "assumes that the unexplained shortfall in labor force participation had no effect on total employment," the analysis can still be applied to the January number, just adjusting the headline comparative figure from 8.7 percent down to 8.3 percent and then adding in the 1.25 percent addition (rounded up).
The man on the street analysis would suggest the country feels the unemployment rate is closer to 9.6 percent than 8.3 percent. And with the Fed's negative view on the economy and continued ZIRP there are clearly concerns about the labor market moving forward this year. The Obama path to a second term rides heavily on the unemployment rate and perceived unemployment rate. The headline stat looks good for now but the White House is not out of the woods yet.