WHY THE UNEMPLOYMENT RATE FELL IN JANUARY EVEN THOUGH U.S. JOB CREATION WAS VIRTUALLY NIL

Feb 19, 2021

The U.S. unemployment rate fell in January to a new pandemic low of 6.3% and is just several points above precrisis levels. Great news, right?

Not exactly. The unemployment rate declined in January for the wrong reason and is much higher than what is officially being reported. 

Last month the jobless rate slid to 6.3% from 6.7%, down by more than half compared to a pandemic high of 14.8%. The main reason the rate fell in January, however, is because the government said there were 406,000 fewer people in the labor force. Barely any new jobs were added last month.

Once people stop looking for work, they are no longer counted in the official unemployment rate.

Although the U.S. has regained about 12.5 million jobs since the pandemic lashed the economy last spring, fewer people in the labor force explains a sizable chunk of the decline in the unemployment rate.

The size of the labor force has shrunk since last March by 4.3 million to 160.2 million. 

So just how high is unemployment really? Economists estimate 9% to 10%.

“Adjusting for the people that have dropped out of the labor force, by choice or obligation, the unemployment rate is around 9.5%,” estimated lead U.S. economist Lydia Boussour of Oxford Economics.

Source: MarketWatch

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