Hearing the mainstream media breathlessly report that the unemployment rate declined to 8.5% makes it sound like all is well and the economy is mending. Unfortunately, there’s more to the story. 

The official unemployment rate, called “U-3” by the Bureau of Labor Statistics (BLS), doesn’t include discouraged workers who gave up looking for work, nor does it include people working part time who want full time jobs. “U-6” is the real unemployment number, and it stands at a whopping 15.2% in Dec 2011. (See BLS Labor Underutilization for details)

The Rest of the Story

In the past two months, BLS reported a total of 300,000 new jobs added. If you dig into the fine print, though, you’ll see that 625,000 people were magically dropped from the rolls in the same period and no longer counted.

  • In November, the U.S. added 100,000 jobs (revised down from 120,000 reported last month) but 315,000 people ‘dropped out’ of the labor force the same month and were no longer counted.

  • In December, the U.S. added 200,000 jobs, but another 310,000 dropped out of the labor force

Another perspective of the real jobs number is the labor participation rate, the percentage of working age people between 16-64 who are actually working or looking for a job. People who are discouraged and have given up looking for a job are considered to have dropped out of the workforce, so the labor participation rate goes down.


The Magical Birth and Death Rate

That’s not the end of the smoke and mirrors. Of the total jobs created in 2011, 490,000 of the new “jobs” were actually conjured up by the magical birth/death model, a mysterious government formula that creates mythical jobs by estimating the birth and death of businesses.

Despite all the smoke and mirrors, we still have a long way to go before the economy gets back to normal. The U.S. needs to add 250,000 ‘real’ jobs per month for several years just to get back to historical averages.

Unfortunately, Obama’s “jobs plan” relies solely on short term gimmicks, like cutting $40 a month from the social security withholding for the average worker (even though it will just bankrupt social security faster). Unfortunately, this is just a short term Band-Aid that won’t actually create new jobs. If Obama truly wanted to create jobs, cutting taxes would go a long way to energizing the job market. Otherwise, BLS will have to continue conjuring up fictional jobs.

Mike_MerrillMike Merrill is an entrepreneur, Army veteran, Ranger and West Point grad. He is the author of “Leadership Lessons of a Campaigner-in-Chief”  http://amzn.to/svMh70