A Jobs Report Disaster and an Unemployment Puzzle

Today the Bureau of Labor Statistics gave us the kind of jobs report that makes me wish I wasn’t working in the age of the super-fast news cycle.

The headline number is really bad. The BLS says the economy added 72,000 jobs in December, which would be the worst result in a good, long time.

And yet the household survey showed a very large drop in unemployment, all the way down to 6.7 percent, the lowest we’ve seen in some time.

One way for unemployment to drop even as job growth stalls is for huge numbers of people to drop out of the labor force. And we have seen labor force departures all year and that continued this month. But labor force participation actually jumped in November so that’s not the full story here. Divergences between the two surveys just sometimes happen and you usually need to wait a month or two for the revisions to straighten things out. Speaking of revisions, when you factor in the new revisions to the past two months the overall three month average job growth looks exactly the same as it’s been for the past two years. So this could all just be statistical noise.

Long story short, we are getting very close to the Federal Reserve’s 6.5 percent unemployment threshold, and despite that the overall labor market looks weak. That means the distinction some Fed officials have drawn between a “trigger” (meaning tighter money as soon as you reach 6.5 percent) and a “threshold” (meaning nothing is automatic) is about to become very relevant. The threshold approach is a much better one, but at her first meeting and press conference Janet Yellen may find she needs to clarify exactly what threshold means faster than she was hoping.