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9.0%? A Number Full of Sound and Fury, Signifying Nothing

As mentioned below, the BLS released its unemployment report for January this morning. As you can see from The Chart, unemployment made another 0.4-point drop, falling from 9.4% to 9%. Unfortunately, that number, like The Chart itself, has become irrelevant to understanding the unemployment situation.

Yes, The Chart, which brought me fame, fortune, and black helicopters buzzing lazily overhead, has become as pointless as the U-3 numbers it plots. It's partly because the number of people who have dropped out of the labor force has gotten so large. For example, the Household Survey says that 622K people dropped out of unemployment. Of these, 100K found jobs, 200K are "marginally attached" (i.e., they'll show up in the U-4, U-5, and U-6 unemployment rates), and 300K have dropped out of the work force entirely (they won't show up in any of the unemployment calculations). When 5/6 of your "improvement" is actually bad news, it's obvious that the U-3, and even the U-6 unemployment rates are not very useful (except in harassing the administration, of course).

To see how bad it really is, check this out:

Yeah, we should have 5 million more people in the labor force than we do today (maybe slightly smaller due to demographic shifts, but...). Pick a "U-", any "U-": Those people won't show up in any unemployment rate.

The Household Survey numbers themselves had huge adjustments this month: the BLS revises its population numbers every year based on the latest Census Bureau estimates. This year, that pulled 500,000 people out of the labor force. I think the revision is a good thing - without it, the BLS would have reported that 590K people moved from unemployed to employed.....in a month where the Establishment Survey tells us that only 36K jobs were added. [The unemployment rate is based on the Household Survey, but the Establishment Survey (industry survey) is considered to be a more accurate gauge of how many jobs are added or lost.]

There may be a spot of good news in this report. The number of people employed part-time dropped by 780K, which would indicate that at least some of these job were converted to full-time positions. The number of part-timers has been swinging wildly lately, with fluctuations larger that those entering and leaving the workforce. It was increasing reasonably steadily over the last quarter of 2010, so seeing it drop is good news. But we'll see next month, w/o the effect of the adjustments to muddy the data.