Jobless Rate Falls, But Employment Remains Bleak

Unemployment rate drops to 9.4 percent as workers give up the job hunt.

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After a disappointing November employment report, early indicators showed job seekers might have something to cheer about when the Labor Department released its report for December. But the numbers were, yet again, a letdown. About 103,000 jobs were added in December, lower than the 150,000 economists expected.

And while the unemployment rate fell to 9.4 percent from 9.8 percent, economists said much of that drop was due to a rise in the number of discouraged workers, or people who are no longer looking for work because they don't think they'll find a job.

"Half the decline [in the unemployment rate], yes, was people getting jobs," says John Silvia, chief economist for Wells Fargo. "The other half was people dropping out [of the labor force]. That dropping out is very discouraging."

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Revisions to earlier reports helped offset some disappointment. The department revised its estimates for the previous two months, bumping up November's employment gains to 71,000 from 39,000, and October's to 210,000 from 172,000. And the addition of 103,000 jobs, some economists say, is at least moving the economy in the right direction. "With upgrades from the last two months, the improvement trend is intact," said Al Angrisani, former Assistant Secretary of Labor, who now works with distressed companies.

A short burst of optimism ahead of the government's December report was spurred by a previous estimate from payroll processing firm ADP, which showed private employers had created 297,000 jobs in December. Government figures showed private payroll gains of just 113,000. Jobs gains in leisure and hospitality, healthcare, and among temporary workers help accounted for most of those gains, while certain areas of construction saw job losses. The average workweek and average hourly earnings remained largely unchanged.

"[The report] suggests we are only seeing a slowdown in layoffs, not yet a material pickup in hiring," according to Kathy Bostjancic, director for macroeconomic analysis for The Conference Board, a research association.

Who landed jobs? Unemployment rates fell for adult men and whites, while adult women, teenagers, blacks, and hispanics saw little improvement. The number of long-term unemployed, those jobless for 27 weeks or more, also remained unchanged. That group continues to account for 44.3 percent of the unemployed.

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While the total number of unemployed dropped by 556,000 to 14.5 million, driving the unemployment rate down from November's 9.8 percent, the pool of discouraged workers rose to 1.3 million. An uptick in discouraged workers giving up the job hunt is a key reason for the overall monthly decline in the jobless rate. Workers facing an end to unemployment benefits will remain a structural problem for the economy at large as unemployment benefits expire.

"I take it as a sign that part of our economy—whether you call it Utica, New York, or Hickory, North Carolina, or Rockland, Illinois—a lot of these people are just structurally unemployed," Silvia says. "They just don't have the skills to compete in the labor market right now, and that's discouraging for the overall economy."

For that reason, don't be surprised if the unemployment rate slides up again during the next few months. At this job-creation pace, it belongs at 9.5 or 9.6 percent, says Tig Gilliam, CEO of Adecco Group North America, a global recruitment firm. "Our recovery continues," he says, "but it's a slow recovery."

What does all of this mean for job seekers?

"There's still a lot of uncertainly," says Lawrence Katz, an economics professor at Harvard University. "Things are looking up, but it's still a very weak labor market."

And yet, job seekers would be smart to make a big push during the next six months, Angrisani says, because we're likely to see more job creation during the first half of 2011. "The next six months is a great window if you're really serious about finding a job," he says. "Between now and this summer is when I think you've got your best shot at finding one."