BUSINESS

Unemployment Rate Falls To 8.1 Percent As People Give Up On Looking For Work

05/04/2012 08:32 am 08:32:29 | Updated Jul 04, 2012

While the U.S. unemployment rate in April was the lowest it's been in more than three years, the unemployed may simply be falling off the government's radar as they give up looking for work.

Meanwhile, job growth has slowed sharply after a fast start to the year, suggesting another bump in what has been an agonizingly long road to recovery for the job market.

Unemployment fell to 8.1 percent in April, the lowest since January 2009, the Bureau of Labor Statistics reported Friday morning. But the decline was mainly due to 342,000 people leaving the labor force, meaning the BLS had stopped counting them as unemployed. The number of employed people in the nation actually fell by 169,000.

Nonfarm employers added 115,000 jobs to their payrolls in April, according to a survey of businesses that is different than the household survey that generates the unemployment rate. That job growth was lower than the 170,000 or so economists had expected, though the BLS revised upward the number of jobs that were created in February and March, adding about 53,000 additional jobs to payrolls.

About 12.5 million people are still unemployed, and a record 88.4 million people are considered "not in the labor force," according to the BLS. The labor-force participation rate -- the percentage of the work-age population either working or looking for work -- dropped to 63.6 percent, the lowest since December 1981.

"It's hard to see the good news here," David Semmens, senior U.S. economist at Standard Chartered, wrote in a research note.

The stock market reeled on the news, which suggested the economy is still sluggish, but not so weak that the Federal Reserve will leap to its aid any time soon with fresh stimulus. The Dow Jones Industrial Average was recently down more than 120 points, or 0.9 percent, to about 13,083, while the Standard & Poor's 500-stock index was down more than one percent.

The sluggish recovery is an obstacle to the re-election chances of President Obama this fall and a boon to his Republican challenger, Mitt Romney, who told Fox News the April jobs report was "terrible and very disappointing."

The White House pointed out that the job recovery is the legacy of a recession that started on the Bush administration's watch.

"Much more remains to be done to repair the damage caused by the financial crisis and the deep recession," wrote Alan Krueger, chairman of the White House's Council of Economic Advisers, in a statement. "It is critical that we continue the economic policies that are helping us dig our way out of the deep hole that was caused by the severe recession that began at the end of 2007."

Critics on the left, such as Princeton economist Paul Krugman, have argued that the Obama administration has not done enough to spark demand, while critics on the right, including Romney, argue the administration has hindered the recovery with too many regulations. Many economists tend to believe such a sluggish recovery was perhaps inevitable following the bursting of the housing bubble and a severe recession.

"While some would like to attribute the lack of hiring to uncertainty and regulatory roadblocks, the fact is that demand for goods and services simply has not reached a level that warrants accelerated hiring," John Challenger, CEO of consulting firm Challenger Gray & Christmas, wrote in an email. "In areas, where demand has improved, so has hiring."

Whatever the reason, U.S. payrolls are still nearly 5 million jobs lower than they were when the recession began. This labor-market recovery has been arguably the most sluggish since World War II -- though the job losses in the recession were also the deepest.

More than 5 million people have been unemployed for 27 weeks or more, and the average length of unemployment is more than 39 weeks, according to the BLS.

Many workers are leaving the labor force because of retirement or to collect Social Security disability checks. But an untold number have simply given up looking for work after long months or years of unemployment.

"If someone spends two years sending out resumes with almost no response, don't I give up or go back to school?" Bank of America Merrill Lynch economist Neil Dutta wrote in a note.

A broader government measure of unemployment, which includes people described as "marginally attached" to the labor force -- people who have given up looking but would still like a job, or who are working part-time because they can't find anything better -- held steady at 14.5 percent. The situation is particularly grim for African-Americans, with a 13 percent unemployment rate, and teens, with a 24.9 percent unemployment rate. The unemployment rate is 13.2 percent for Americans aged 20 to 24, suggesting a particularly tough job market for college graduates.

And the prospects for work seem to have weakened abruptly in recent months. Monthly job gains have slowed in each month of the year, from 275,000 in January to 259,000 in February and 154,000 in March.'

Many economists believe that unusually warm winter weather made hiring stronger than usual in the winter months, pulling activity forward from the early spring. Recent disappointing job numbers may be payback for the earlier months' strength, in other words. According to this theory, job growth should pick back up again once the weather effects wane.

The three-month average of job growth has been 176,000 jobs per month, the Economic Policy Institute pointed out. While that's more than enough to keep unemployment from rising, it's still not good enough, given the deep hole the job market is still in.

"The labor market continues to very slowly improve," the EPI wrote in a press release, "but it is a far cry from the 300,000 or 400,000 jobs we would need per month to get back to full employment in a reasonable timeframe."

Some economists took heart at some signs of strength in the business survey. Retailers added 29,000 jobs, while temporary services added more than 21,000 workers. An increase in temp workers is sometimes a sign that businesses are getting ready to make more permanent hires.

Other details of the business survey were less encouraging: The average length of the work week was flat at 34.5 hours, while average hourly earnings rose by just a penny to $23.38.

Over the past year, hourly earnings have risen by just 1.8 percent, the BLS said -- not even enough to keep up with inflation.

"Weak job growth and weak income growth is most unwelcome," Dan Greenhaus, chief global strategist at BTIG, a trading firm in New York, wrote in a research note, "especially at a time when so many were banking on the exact opposite."

Update: This story has been updated with additional quotes and details throughout along with the stock-market reaction. It has also been corrected: There were 12.5 million people unemployed in April. An earlier version of the story incorrectly said 11.9 million people were unemployed.

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