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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
ETF Expert) -- The headline unemployment number has fallen to 8.5% from a "Great Recession" high that is well north of 9%. Many say that the trend is heading in the right direction. And the media are beginning to tout the executive branch of government as having contributed to "job creation."
Privately, many economists decry that systematic wealth redistribution is incapable of creating jobs -- issues of fairness notwithstanding. In the same vein, conservatives wonder why the White House can be credited with 2.7 million positions filled. Shouldn't the media discuss the 4.3 million lost during the current Administration's tenure? That's a net loss of 1.6 million jobs.
(Note: Approximately 4.3 million more jobs were lost under President Bush, for a total loss of 8.6 million. The Great Recession was rather unkind.)
In truth, investors need to be able to put aside the "spin," as well as political affiliation (or non-affiliation). How can people do that? They can focus on a more robust indication of employment health in the "labor force participation rate."
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The labor force participation rate takes into account those individuals who are employed as well as those who are unemployed, but who would like to be working. In contrast, the popular unemployment rate ignores those who have given up looking for work and/or who do not collect unemployment compensation. In "normal times," the participation rate may approximate 67%.
So, for example, November and December's employment gains were considered remarkable, as the unemployment rate dropped from 9.1% in October to 8.7% in November to 8.5% in December. However, the 278,000 jobs gained in November did not take into account 315,000 Americans who stopped looking for work or who stopped receiving compensation. Not surprisingly, the labor force participation rate remained at 64%.
Taken a step further, the participation rate remained unchanged at 64% in December 2011 as well, even though the unemployment rate had hit 2 1/2 year lows at 8.5%. More telling, the participation rate in January, 2011 was 64.3% -- actually a bit healthier than in December, 2011.
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