Dan already summarized the meat of last Friday’s jobs report, but I wanted to briefly comment on one fairly esoteric point.  The Friday release included an annual “benchmark revision” to the population, labor force and jobs numbers.  Each year the Bureau of Labor Statistics (BLS) updates historical data based on updates from the Census Department.  When the data was released Friday morning, commentators on CNBC and Fox Business News were apoplectic regarding what they read to be monstrous declines in the labor force during the month of January.  That is, the report showed that persons not in the labor force were 1.2 million greater in January than in December.  They interpreted this to mean that the discouraged workers were leaving the labor force in huge quantities.

However, this effect was entirely due to the benchmark revisions.  It turns out that the Census Department increased its estimate of the U.S. non-institutional adult population by 1.51 million, and most of these additional people were not in the labor force.  Specifically, of the increase in population of 1.51 million, 258,000 were in the labor force and 1,252,000 were not (the primary reason for this low rate of labor force participation is that most of the increased population was over the age of 55).  After removing the effect of the data revision, the results of the Household Survey were that the labor force increased in January by 250,000, jobs increased by 631,000, the number of unemployed dropped by 381,000 and the number of people not in the labor force dropped by 75,000.

Thus, notwithstanding the contrary claims by the chattering class, the drop in the unemployment rate in January was due to more people getting jobs, not due to more people leaving the labor force.

This is not to argue that the discouraged worker effect is not important.  Since the recession began in December 2007, the labor force participation rate has declined by 2.3%.  If this had not occurred, and the participation rate today was the same as December 2007, then the number of unemployed people would be more than five million higher and the unemployment rate would be in excess of 11%.  Bottom line, declining labor force participation is a big deal, but the problem did not materially worsen in January.