For the USA, unemployment is the new normal

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.

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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".