by Calculated Risk on 2/03/2006 01:32:00 PM

The employment report was mostly ho hum. The exception was the drop in the unemployment rate to 4.7%.


Click on graph for larger image.

This graph shows employment growth for Bush's second term. So far job growth has been about as expected. So why has the unemployment rate decreased?

The answer has to do with the employment participation rate. Over the last 5 years, the civilian noninstitutional population has added about 2.7 million people per year (those 16 years and over). Over the last 12 months the population has added 2.716 million - in line with previous years.

However, over the last 5 years, only about 1.2 million people per year have joined the civilian labor force. This is very puzzling, especially since it is unlikely that the baby boomers are retiring in significant numbers yet. More likely there is a fairly large group of people that would choose to join the labor force with higher incentives. Therefore I think, even with a 4.7% unemployment rate, there is still substantial slack in the labor market and the US will not see wage inflation pressures in the short term.

Once again, construction played a significant role in employment gains. For more, see Kash's Job Growth by Industry.