NYC Letter: Despair Depresses Unemployment Redux

Day 1,107 of CHOPE

The unemployment rate is down again. That's the bad news.

RECORD 1.2 MILLION PEOPLE
FALL OUT OF LABOR FORCE IN ONE MONTH,
LABOR FORCE PARTICIPATION RATE TUMBLES
TO FRESH 30 YEAR LOW

February 3, 2012 (Zero Hedge) - A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.

... This is the largest absolute jump in 'Persons Not In Labor Force' on record...and biggest percentage jump in 30 years.

Mr. Obama was quick to spin the BLS report into more fabulous evidence of his feeble recovery.

OBAMA: 'THE RECOVERY IS SPEEDING UP'

February 3, 2012 (USA Today) - President Obama saluted "more good news about our economy" today and made an election-year argument that "we can't go back to the policies that led to the recession."

Obama spoke at an Arlington, Va., firehouse just hours after the Labor Department reported that the economy added 243,000 new jobs in January and the unemployment rate dropped to 8.3%.

Although "these numbers will go up and down" in the coming months, Obama told the firefighters, "the economy is growing stronger -- the recovery is speeding up."

You may recall Mr. Obama has been singing this same tune since 2009 whatever the unemployment number. He keeps bragging on a recovery that never quite arrives and undocumented "saved* or created" jobs that can't be stretched to cover net job losses. Mr. Obama thinks he can sucker you by spinning poor performance as great performance. But you know better. [Pause.] Unless you are from Washington, D.C.

WHY THE OFFICIAL 8.3 PERCENT
UNEMPLOYMENT RATE IS A PHONY NUMBER—
AND WHAT IT MEANS FOR OBAMA’S REELECTION
By James Pethokoukis

February 3, 2012 (AEI) - If the participation rate does level off at its current rate, according to HPS, the economy would need to generate 231,000 jobs per month to get below 8 percent unemployment by Election Day. If the participation rate continues its downward slide, however, that number would be much lower—perhaps as low as 131,000 jobs a month (see below chart). But such a decline wouldn’t necessarily be good news.

Why is that? Because the unemployment rate would be falling because the economy remained weak with not many jobs created. That also means weak income growth, which is even more influential on presidential election results than the unemployment rate. If people don’t sense their own economic situation improving very much, it won’t matter what some distorted statistic from a government agency says about the economy. Or what Obama says, either.

One of the most accurate election forecasting models doesn’t even look at the unemployment rate. It looks at per person GDP growth, which correlates with income growth. If you plug a 2 percent GDP forecast for 2012 into the model of Yale’s Ray Fair, the algorithm predicts a close election, but still an Obama defeat with the incumbent president getting just 47.8 percent of the two-party vote.

And that, anxious chômeur, is the countervailing good news.

Bottom line: The unemployment rate is dropping because economic growth continues to be so anemic that nearly 4 million Americans have quit looking for work and have been disappeared by the Labor Department. This still isn’t much of a recovery.

CHOPE.

Bad news begets good.

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* There is no metric for Team Barry's "saved" jobs claims (and this).