For the USA, unemployment is the new normal

Ever more out-of-work Americans have given up looking for jobs, flattering employment figures.

Investors had a nasty surprise last week: US payrolls expanded by a mere 74,000 in December, the lowest monthly total in three years. However, this was due to the unusually cold weather.

The average payroll growth for the past two months is around 160,000; the six-month average is 170,000. So the overall trend hasn't changed, and the US Federal Reserve is unlikely to halt its tapering programme.

But there certainly was bad news in the report, as Economist.com's Free Exchange blog points out. The unemployment rate fell to a four-year low of 6.7%, down from 7%. But that was largely due to discouraged workers giving up on job hunting.

As a result, the labour force participation rate (the proportion of over-16s in work or seeking it) slipped to 62.8%, the lowest since 1978. In 2007 it was 66%.

Both the downturn and structural factors baby boomers retiring and women's participation in the labour market levelling off are responsible.

Other statistics also highlight the damage the Great Recession has done to the labour market, which in turn undermines long-term growth prospects.

The employment-population ratio (the share of the working-age population in work) is down to 58.6% from 63% before the downturn. Almost 3% of the labour force has been jobless for more than half a year a post-war record.

It's becoming harder to treat poor labour market data as "some abnormal weakness in the recovery", says Free Exchange. Instead, perhaps our "definition of normal must be revised down".

Recommended

Here’s why markets welcomed America’s big interest rate rise
Stockmarkets

Here’s why markets welcomed America’s big interest rate rise

The US Federal Reserve raised interest rates by half a percentage point – the biggest hike in 20 years. So why did markets rise? John Stepek explains …
5 May 2022
UBI which was once unthinkable is being rolled out around the world. What's going on?
Global Economy

UBI which was once unthinkable is being rolled out around the world. What's going on?

Universal basic income, the idea that everyone should be paid a liveable income by the state, no strings attached, was once for the birds. Now it seem…
8 Apr 2022
The stockmarket rebound has nothing to do with Ukraine or the Federal Reserve
Stockmarkets

The stockmarket rebound has nothing to do with Ukraine or the Federal Reserve

Stockmarkets bounced yesterday after the Fed raised interest rates and hopes of peace in Ukraine rose. But more relevant was what happened in China. J…
17 Mar 2022
The US Federal Reserve must fight its own battles
US Economy

The US Federal Reserve must fight its own battles

Getting involved in other political fights will undermine the credibility of America's central bank – and that could affect us all, says Matthew Lynn.
6 Mar 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022