Unemployment Rate Has Become a Bad Joke

By Jeff Cox, CNBC.com Staff Writer

NEW YORK (CNBC) -- The national unemployment rate is becoming an increasingly meaningless statistic when it comes to painting a true picture of economic and job growth.

While the December drop from 9.4 percent to 9.0 percent might have looked nice on paper, digging through the real numbers shows the actual jobs picture hasn't improved at all.

In fact, the situation is at best stagnating, despite headline numbers that make it appear things are getting better.

At the heart of the unemployment rate deception are the nearly three million Americans counted as "marginally attached" to the labor force. Those folks would take a job if offered, but actually aren't actively looking and thus not counted in the government's official statistics. There are a million more of them than there were in January 2008, thanks to the lousy job market that seems to be improving only at the margins.

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So when you see a "drop" in the unemployment rate, like we did when the January nonfarm payrolls number came out, it's best to measure carefully the grains of salt with which one takes the official government numbers.

"This is a significant number of people waiting on the sidelines," Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, wrote in a must-read analysis of the labor force's participation rate.

"Considering that there are about 7 million more unemployed now than three years ago, it suggests the pool of available labor could be 15% bigger than the unemployment figures suggest," he concluded.

That puts the headline unemployment rate well north of 10 percent, even as the so-called "real" unemployment number -- which takes into account an even broader swath of the working-age population -- remains above 16 percent but in a modest decline. In fact, Ashworth attributes the drop from the cycle high of 10.1 percent unemployment to the current level "as much due to a contraction in the labor force" as any illusory improvement in the real jobs picture.

"The 836,000 decline in the labor force since (the October 2009 peak) is only slightly smaller than the 930,000 increase in employment," he wrote. "Over the second half of last year, the labor force shrank by more than employment expanded. ...In other words, the drop in the unemployment rate doesn't reflect an improving job market, but rather a decline in the labor force participation rate."

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