The U.S. unemployment rate dropped to its lowest level in 19 months in December. It fell to 9.4% last month from 9.8% in November, according to the Bureau of Labor Statistics. That's the biggest one-month drop we've seen since the recession began. But despite that seemingly impressive decline, just 103,000 new jobs were created. Like November's report, this one provides another confusing result.

Before getting into an explanation of what's going on here, let's start with the high-level charts. Here is how the rate has changed over the past few years:

unemp 2010-12 cht1.png

You can see that December had quite a drop. And here's how jobs have changed each month:

unemp 2010-12 cht2.png

Yet, you can also see that the number of jobs added to the economy last month wasn't that impressive, especially considering the big decline in rate.

Like last month, the variance here can be explained by understanding that there are two different surveys used by BLS. The "Household Survey" provides the unemployment rate and the "Establishment Survey" provides the number of jobs added or lost overall and in each industry. Last month, the Household Survey had a relatively negative result, which caused the rate to rise. This month it had a relatively positive result, which caused the rate to decline. Meanwhile, the Establishment Survey has been consistently lukewarm.

But what does the Household Survey say, because it would certainly be nice to celebrate the unemployment rate declining by 0.4% if that's an accurate measure. Unfortunately, looking deeper into the numbers provides no such good news. In fact, the decline in the unemployment rate can be mostly understood by the labor participation rate having declined, which means fewer people are looking for jobs. The number of unemployed fell by 556,000 in December according to the Household Survey, but that's partially because 434,000 people left the workforce. However, it also says that employment increased by 297,000 jobs. So while the news isn't all bad, most of the decline in the unemployment rate can be attributed to Americans exiting the workforce -- not getting new jobs.

Some of those were discouraged workers. Here's how their numbers have changed over the past few years (this does not take into account revisions made to 2010, since the data was unavailable on the BLS website Friday morning):

unemp 2010-12 discour.png

The broadest measure of underemployment, "U-6," should also be considered. This measures the percentage of workers who are unemployed, discouraged, marginally attached to the workforce, or forced to work part-time because full-time work isn't available. This rate also declined a bit in December to 16.7% from 17.0% in November.

And for the workers who are unemployed, the proportion continues to be skewed towards long-term unemployment:

unemp 2010-12 dur.png

In other words, workers who are unemployed for longer are having more trouble finding work than those who were more recently laid off.

On a sector-by-sector basis, the job growth was generally unimpressive. Here's how the private sector has fared over the past year:

unemp 2010-12 private.png

Again, it's pretty hard to get excited about just 113,000 new private sector jobs in December. And here are the jobs added in individual sectors last month:

unemp 2010-12 sectors.png

You can see that leisure & hospitality and health care were the only really significant winners in December. Construction and government jobs continued to decline, with local government leading the layoffs. You can expect to see these two sectors continue to suffer in coming months due to continuing real estate market woes and fiscal difficulties at the state and local levels.

Despite the seemingly strong headline rate decline, December ultimately provided another mediocre unemployment report. While it's clear that jobs are growing, they're still doing so at a relatively slow rate. But with a new year begun, perhaps firms will approach hiring a little more aggressively going forward. Consumer sentiment and demand do appear to have improved, if holiday shopping is any indication. Without stronger hiring, we'll see the unemployment rate rise again, as Americans re-enter the labor force in coming months.