We noted yesterday that the employment-population ratio and the labor force participation rate fell again last month. So what do the idiots on cable news tell us yesterday? Of course, that unemployment remains low. Dean Baker gets it:
But even if the picture in the establishment survey is still on net positive, the household data surely is not. The most striking item is the drop in the employment rate (EPOP), the percentage of the population that is employed. This fell by 0.2 percentage points in October. While the monthly numbers on the household side are always erratic, this decline is part of a longer trend. The 62.7 percent EPOP is 0.6 percentage points below the December 2006 level, corresponding to a drop in employment of 1.4 million people. One of the peculiarities of this cycle is that labor market weakness has expressed itself far more in declining labor force participation rather than measured unemployment.
Dean also notes that Ben Bernanke also gets it:
However, my sense is that, when one looks at the full range of information available, the labor market looks (if anything) weaker than a 6 percent unemployment rate suggests. For example, it appears that workers who have lost their jobs in the past couple of years have been more likely to withdraw from the labor force (rather than report themselves as unemployed) than were job losers in previous recessions. Indeed, the labor force participation rate fell sharply between 2000 and 2003, from a little over 67 percent to about 66-1/4 percent. Similarly, the ratio of employment to the working-age population, a statistic that reflects both those who become unemployed and those who leave the labor force, has fallen significantly, by 2.8 percentage points between its peak in April 2000 and its trough this past September. The tendency of recent job losers to leave the labor force likely masks some of the effects of job cuts on the unemployment rate, so that the current measured level of unemployment may understate the extent of job loss or the difficulty of finding new work. Of course, a labor market that is slack and improving only slowly is likely to produce continued slow growth in nominal wages, contributing to continued moderate growth in costs.
This speech was delivered on January 4, 2004. One would think someone in the press would have realized the wisdom of looking at the employment to population ratio by now. Let me turn the microphone back to Dean:
I was glad to see the vice-chair of the Fed focus on what I had considered to often be a better measure of labor market slack than the unemployment rate. Unfortunately, his comments seem to have been forgotten by those covering the employment data.
More over at EconoSpeak.