Unemployment Down and Employment Up!

The unemployment rate fell to 9.7 percent in January 2010 from 10 percent in December. Perhaps the peak for this recession will turn out to be the 10.1 percent rate in October 2009. The unemployment rate is now back down the level of August.

What about employment? Employment estimated by the household survey was 138,333,000 workers in January 2010. That is an increase of 541,000 or .34 percent from December. Employment is increasing at a 4.7 percent rate, which is well above the trend growth of employment for the Great Moderation of 1.39 percent per year.

Unfortunately, employment remains very low. It is 5.5 percent below its peak in January 2008, one month after the official beginning of the recession in December of 2007. There 8,088,000 fewer people working today than before the recession began.

The 8 million figure is not the number of people who lost jobs during the recession. (As the article in the local Charleston paper described it.) The number of people who lost their jobs is much greater, but many people were hired. This is the difference between those who lost jobs or quit and new hires. See here for an earlier post on employment figures.

Unfortunately, employment remains far below its trend growth rate. If it had continued to grow with the trend of the Great Moderation, it would be 152 million today, so its current value is 9.7 percent below trend. This is slightly better than last month, but there is a long way to go.

The employer survey of nonfarm payrolls continued to decrease in January, but at the very slow .2 percent annual rate. The actual decrease is 1/12 of that, which is pretty small, about 20,000 employees out of 129,500,000. That was the measure that peaked in December of 2007. After the last recession, the household survey showed improvement many months before the employer survey.

If the Fed would institute nominal expenditure targeting, a rapid increase in employment and drop in unemployment would be possible over the next year. However, it is almost certain that the natural unemployment rate increased because of the need to reallocate labor away from housing, especially, to other areas of the economy. Over the next year, a reformed Fed could "create" perhaps 7 million jobs and reduce the unemployment rate to 7.5 percent. Even with the best monetary policy, however, a return of the unemployment rate to something near 5 percent, and an expansion of employment somewhere close to trend, may take several years.