Most people who pay attention to government stats are now wise to the fact that labor force data is just as important as the employment data in determining the unemployment rate. As pointed out by Santelli today, a few hundred thousand people were disappeared from the labor force to get the unemployment rate down below eight percent.
Even Reuters was forced to admit that the labor force decline was the real issue here. Although backers of the administration, predictably, are claiming that there's momentum in the economy.
But just to get some perspective, let's look at the government's numbers on total payroll employment. The graph shows that with November's numbers, employment is now back up 2006 levels. That is, we're down 3.1 million jobs from the peak. Private-sector employment is even worse and is still at 2005 levels and is down 3.9 million from the peak. True, some people are leaving the work force as they retire, which means we now have more people on the dole. But even with retirees, we're obviously not adding jobs for those entry-level people, which one can also guess from the massive employment among teenagers. One could also note that total private employment is barely above what it was back in 2000.
Robert Wenzel thinks the relatively positive numbers (in a short term analysis) reflect ongoing Fed pumping, and I agree with him, but even with QE3, we're still looking at four to seven million unemployed people, and this also ignores the underemployed and those forced into part-time employment.
If we look at year-over-year change in total employment, we can see that the numbers are very weak during this latest "recovery." In fact, the job gains keep getting smaller with each expansion period. Job gains are weaker now than was the case during the 2002–2008 expansion, and that job growth was weaker than was the case from 1992–2001. The Fed has been expanding the money supply enthusiastically since the late eighties, and with each expansion, job growth gets worse and worse. There are demographic effects of aging populations of course, but that doesn't explain it all, and the total population has been getting bigger.
Just look at the 1980s. During the mid-eighties, when the effective Fed funds Rate was still above 7 percent, employment growth was much higher than it is now. As the Fed has forced down the interest rate again and again, employment growth has just become weaker and weaker. Now, with the effective rate at zero, we can't even gin up enough job growth to match the lackluster recovery of the Bush II years.
This illustrates the limits of loose monetary policy. The Fed has exhausted all its options. The interest rate is at zero. It's buying up 61 percent of the government debt, and the US economy is still in the worst recovery since the Great Depression. When the next recession comes — and it's already been five years since the last one started — What rabbit will the Fed pull out of the hat? Lots of money-printing is all I can see.