Here’s Why the Unemployment Rate is Back Up

Employers in the United States added fewer jobs in January than in previous months, bringing the rate of unemployment back up to 7.9 percent from 7.8 percent. The U.S. economy added 157,000 jobs compared to 196,000 jobs in December, according to data released by the Department of Labor on Friday.

The numbers were close to what economists had predicted.

Job increases came in the retail, construction, healthcare, and wholesale trade sectors, while the federal government made cuts. As The New York Times reported, government payrolls have decreased almost every month in the last four years.

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Poor hiring figures contribute to the string of negative economic reports released this week; the Commerce Department announced that the gross domestic product – or the nation’s economic output – unexpectedly shrank in the last month of 2012 and the Conference Board reported that consumer confidence fell to its lowest level in more than a year as Americans became increasingly pessimistic about their personal finances and job prospects. The payroll tax increase did not help either.
“The combination of eliminating the payroll-tax forgiveness along with continued stagnation in wages, I think, could be a real hit in terms of jobs,” Christine Owens, director of the National Employment Law Project, told the Times. “If you add in sequestration” — the across-the-board cuts to federal spending currently scheduled for March 1 — “that paints a pretty bleak picture.”

Last year, job growth barely kept pace with population growth, and it was nowhere near enough to put a dent in unemployment; currently 12.3 million workers remain without jobs.

Lawmakers have struggled to determine fiscal policy, and that factor combined with the tenuous economy has made employers reluctant to hire. As a result, the labor force participation rate, meaning that the number of people of working age that are either working or looking for jobs, is at a 30-year low.

“The decline in the labor force participation rate brought the unemployment rate down much faster than anyone would have thought, given the jobs numbers,” RDQ Economics chief economist John Ryding told the publication. “The aging of America accounts for a little bit of it, but you’d still expect that job searches would go up and participation would rise as opportunities are opening up.”

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