How Did We Lower Unemployment But Create So Few Jobs?

The January jobs report is a head-scratcher, with job growth falling far short of expectations even as the unemployment rate declines

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The January jobs report, released Friday morning by the Labor Department, has left pretty much everyone perplexed.

The U.S. economy added just 36,000 new jobs in January--far short of the roughly 145,000 jobs economists predicted--but the unemployment rate dropped from 9.4 percent to 9.0 percent, its lowest level in almost two years. Private companies added 50,000 jobs while federal, state and local governments cut 14,000 jobs. The manufacturing sector performed particularly well as did retail, albeit on the heels of the holiday season. Meanwhile, the construction, transportation, and warehousing sectors got pummeled.

The Labor Department calculates the unemployment rate based on a household survey and job creation based on a survey of businesses, which helps explain the seemingly contradictory assessments of the labor market. But what else is going on here? After all, this is the second month in a row that the unemployment rate has dropped even while job growth disappoints.

  • Unemployed Must Be Giving Up, suggests former deputy White House press secretary Tony Fratto at Politico: "I can only assume that workers are becoming discouraged and stopping looking for work." When unemployed people quit searching for jobs, the government no longer considers them unemployed.
  • Severe Snow Storms Played a Role, notes Lucia Mutikani at Reuters. Bad weather may have contributed to the troubles in the construction, transportation, and warehousing industries, she reports, and 886,000 people in the household survey said they didn't work in January because of severe weather. An analyst tells Mutikani that storms didn't reduce labor demand but probably disrupted the hiring process. 
  • Report May Be Better Than It Looks, asserts Jay Hancock at The Baltimore Sun: "Two straight months of unemployment declines of 0.4 percent is big news and looks a lot like the Reagan economic recovery of 1983," Hancock argues. He adds that the unemployment survey may actually be a more accurate measure than the survey of employers because the latter "has a habit of missing new jobs in a recovery. The Labor Department can't survey employers that it doesn't know exist, and in recoveries new companies are formed."
  • Everything But Jobs Indicates Recovery, points out The Economist's Ryan Avent: "A solid fourth quarter GDP report contained a truly blockbuster increase in real final sales. Manufacturing activity is soaring. Consumer spending is up and the trade deficit is down. Markets are trading at their highest level in over two years."
  • Jobs Just Won't Improve, says Hot Air's Ed Morrissey: "The average monthly growth of jobs over the last 12 months has been 97,000, not enough to keep up with population growth." According to CNN, the labor market needs to add about 150,000 jobs each month to keep pace with population growth.
  • And That Hurts Obama's Reelection Prospects, argues Matt McDonald at Hamilton Place Strategies, in a note preceding the jobs report. He explains that the U.S. economy has to create 215,000 jobs per month for the unemployment rate to drop below eight percent by Election Day 2012. "Since 1960," he explains, "the unemployment rate has been above 7 percent during four elections: 1976, 1980, 1984 and 1992. In three of these 4 elections, the incumbent party lost. Only in 1984 did Reagan win with 7.2 percent unemployment, which was in the context of a 1.3 percentage point drop in unemployment during the year prior to the election."
This article is from the archive of our partner The Wire.