To view the pre-release fact sheet as a PDF, click here.
We have seen the glimpse of a jobs recovery over the past several weeks. Unemployment claims have continued to fall below the key 400,000 level, with the most recent 4-week rolling average at 373,000. Likewise, the ADP payroll estimate came in at a robust 325,000 new jobs for December.
While some of these forward-looking numbers hold promise, the actual jobs numbers so far have been middling. Hopefully the numbers tomorrow will turn that around. But the real missing piece for a true recovery in the job market has been workers. Even as the unemployment rate dropped from 9 percent to 8.6 percent last month, a little over half of that decline was due to workers dropping out of the labor force.
Labor force participation averaged 66 percent through most of the 2000s. It now stands at 64 percent after declining again last month. If more people were still looking for jobs, and the participation rate were back up at 66 percent, the unemployment rate would now be 11.4 percent instead of 8.6 percent.
What all this means is that workers have been voting with their feet and choosing to not participate in a job market they see as weak. Because participation is a measure of worker/voter attitude, it will be an interesting metric to watch this election year. It points as much to how voters are thinking about the job market as how the job market is actually performing.
Over the holidays, the President said that he thought the unemployment rate could break 8 percent by Election Day. To reach that point, he needs to see 254,000 jobs per month between now and then. This is a high number, beyond what we have seen in recent months. Beyond that, the unemployment rate is likely to become sticky in the mid-8 percent range as the participation rate begins to creep back up.
It’s hard to know exactly how many workers are waiting in the wings, but we can look at some estimates. CBO last spring projected that between 2010 and 2012 the labor force would add 2.9 million workers. Halfway through that period, we’ve actually added just shy of 200,000 workers. If those workers do materialize, we’re going to need a much higher job number each month just to keep pace, closer to 170,000 jobs per month than the more typical 130,000 jobs per month.
All of this is a reminder that even with potential good news on the jobs front, America’s job creation engine is so broken it’s going to take some time to fix.
Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House. Prior to joining HPS, Matt worked for McKinsey and Company. He holds an MBA from MIT’s Sloan School of Management and an undergraduate degree in economics from Dartmouth College. This post originally appeared at Hamilton Place Strategies.