December Employment Report: Even Worse that the Lead Paragraph Suggests

BLS opens its report for December 2007 employment with:

The unemployment rate rose to 5.0 percent in December, while nonfarm payroll employment was essentially unchanged (+18,000)

So the payroll survey showed a very low increase in employment but I’m sure the White House will emphasize that reported employment still rose – even if not my much. But how come the unemployment rate rose from 4.7 percent as of November to 5.0 percent? If you were thinking this might be due to a surge in the labor force participation rate – think again. This rate fell from 66.1 percent as of November to only 66 percent as of December 2007. The labor force participation rate was 66.4 percent as of December 2006. The household survey indicated a 436,000 drop in employment – something I bet Lawrence Kudlow is not talking about right now even if had declared this to be a more reliable indicator.

The employment to population ratio therefore declined from 63 percent as of November to only 62.7 percent as of December 2007. It was 63.4 percent as of December 2006. Let’s just hope this dismal news gets the Federal Reserve to lower interest rates. Whether that will be enough to avoid a recession, however, remains to be seen.

Update: For those readers who protest in the comment that they cannot find the NY Times oped by Greg Mankiw that I mentioned, all they would have had to do is to check Greg’s blog for the link. To be fair, however, I should mention Greg’s latest, which quotes Greg Ip:

Mr. Bernanke, whose term is up for renewal in 2010, certainly wants to avoid a recession. But he would probably prefer a mild recession now to a high risk of increased inflation and a deeper recession later.

OK – but my view is that the risk of recession is quite high and I would advocate a more expansionary set of aggregate demand policies be they monetary, fiscal, or a combination.