Unemployment falling for wrong reason creates Fed predicament

Lower Payrolls

Even so, she anticipates many Americans will resume looking for work as the expansion proceeds -- it’s just that the jobs market will need to be much stronger. Payrolls, in particular, remain 1.9 million lower than their January 2008 peak.

“This is not a sea change in how we think about this,” she said.

Daly played down the differences within the Fed on the issue. She now reckons that participation is anywhere from three-quarters of a percentage point to 1.25 points below where it would be if not for the cyclical forces at work.

Representative Kevin Brady, chairman of Congress’s Joint Economic Committee, highlighted the shrinking workforce in a Sept. 6 statement criticizing President Barack Obama’s handling of the economy.

“The labor-force participation rate fell to 63.2%, a level not seen since Jimmy Carter was president,” the Texas Republican said. The “failure of President Obama’s policies are becoming clearer day by day.”

Defending Obama

Jason Furman, chairman of the White House Council of Economic Advisers, defended Obama’s economic record, pointing out that private-sector payrolls have risen for 42 consecutive months.

The experience of 53-year-old Richard Freitas underscores how difficult it can be for economists to sort out what’s going on in the labor market.

Three years after he was let go from his information- technology post at Duracell Inc. in Bethel, Connecticut, Freitas said he deleted a folder on his computer desktop that held his resumes. He dropped out of the labor force in July to focus on applying for disability insurance -- “stress is a silent killer,” he said -- that could help him pay expenses such as rent and child support.

Freitas was employed for 34 years, half of them as an aircraft mechanic at Stratford, Connecticut-based Sikorsky Aircraft Corp. He said he hopes to resume his job search in about three to six months if he’s able to retain financial security and avoid being evicted.

When it comes to the fall in participation, “it’s very hard to say what is cycle and what is trend” the Boston Fed’s Olivei said. “Whatever study you pick, there is quite a bit of uncertainty around the estimates.”


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