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Good News on Jobs but Don't Break Out the Champagne

Prof. Peter Morici - 12/16/2009

Job losses at only 11,000 was good news but unemployment fell to 10 percent as much because folks left the labor force--throwing up their arms in frustration--as folks finding new work.

In the household survey used to calculate the unemployment rate, 227,000 adults were added to the rolls of the employed or self-employed but the number choosing not to look for work increased 291,000.

I expect the unemployment rate to go up again unless more people quit the labor force or productivity growth falls to sub par levels (below 2 percent)

In the establishment data, the increases were not where we would expect them from stimulus spending--government employment was up 7,000 and construction dropped another 27,000. Manufacturing lost another 41,000. The big gains were is private professional services.

Considering the drop in new unemployment claims, which still remain high but are falling, we should expect the bleeding to end by January or February, but thanks to labor force growth the unemployment rate to stay above 10 percent until stronger growth can be achieved.

In a healthy economy, the labor force grows about one percent per year and productivity increases about two percent; therefore, GDP growth must exceed three percent to bring down true unemployment. Economists don't expect that in 2010.