Why did the labor force decline? Well, first we should loudly establish the monthly caveat; there’s a lot of noise in the monthly data so we shouldn’t read too much into any one month.
That said, the labor force 315,000 last month and that explains about half of the large and unexpected decline in the jobless rate. We can get a better feel for the dynamics at play here if we consider the components of the monthly flows behind this drop.
The labor force is the sum of the employed and the unemployed from the BLS Household survey. Last month the labor force count was 153.9 million, the sum of 140.6m employed and 13.3m unemployed.
About 55% of the decline in the labor force last month was people giving up looking for work, meaning they are no longer classified as unemployed by the BLS—they’re out of the labor force. The rest were employed people who went from working to neither working nor looking for a job. Some of those may have gotten laid off and decided not to try to find another job yet. Others may just be retiring or taking some time out of work—we don’t know how those shares distribute.
The figure shows the long term trend of the share of the population in the labor force (aka the labor force participation rate, LFPR—this is from the invaluable FRED database but it doesn’t have the Nov data in it yet, which ticks down from 64.2% to 64%). Note that in the 1990s recovery the LFPR slid in the recession and then grew in the recovery. That didn’t happen in the 2000s and it’s not happening now.
While some of this is demographics—boomers aging out of the workforce—the big story is weak labor demand. Remember, employment was up a measly 4% over the 2000s business cycle and tanked thereafter.
Other Bullets from the Report:
—retail employment posted a big gain, up about 50K, perhaps reflecting stronger buying than expected so far this season. (Reminder: these numbers are seasonally adjusted, so that’s 50K more jobs than you’d expect just based on seasonal hiring.)
—manufacturing is stuck in the mud, flatlining over the past three months after showing some promise in earlier reports. Jan-July this year, factories added 193K jobs; since then, 6K! Not sure what to make of that, but European troubles and their impact on our exports is a suspect.
—the share of the long term unemployed (jobless for at least half a year) remains extremely high at 43%; once Congressional R’s stop dithering and stonewalling on the payroll tax cut, they’ll need to start dithering and stonewalling on extending unemployment benefits.
—thanks to a decline in involuntary part-timers the broader underemployment rate fell from 16.2% to 15.6%. Again, one month does not a trend make, but this bears watching—if it sticks, it’s a positive re labor demand.