The population rose by over 2 million, but the labor force fell by over a half-million. That's your declining unemployment rate in a nutshell.
Note last bullet point above.
The household survey shows a gain of employment averaging a mere 114,500 a month. Meanwhile, the payroll survey shows a rise of 182,000 jobs a month.
The rational explanation is a massive growth in part-time jobs.
I asked the BLS to investigate this but they do not have the data. ADP has the data but denied the request citing privacy issues.
There are no privacy issues - All ADP need do is take counts of people working more than one job and compare to historical trends.
December 2013 Jobs Report
Please consider the Bureau of Labor Statistics (BLS) December 2013 Employment Report.
The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.
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Unemployment Rate - Seasonally Adjusted
Employment History Since January 2009
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Change from Previous Month by Job Type
Hours and Wages
Average weekly hours of all private employees fell 0.1 to 34.4 hours. Average weekly hours of all private service-providing employees rose 0.1 to 33.2 hours.
Average hourly earnings of production and non-supervisory private workers rose $0.05 to $20.32. Average hourly earnings of private service-providing employees rose $0.03 to $20.12.
Real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly. For 2013, one needs to factor in the increase in payroll taxes for Social Security.
For further discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?
BLS Birth-Death Model Black Box
The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.
The Birth-Death numbers are not seasonally adjusted, while the reported headline number is. In the black box the BLS combines the two, coming up with a total.
The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.
Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.
Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.
Birth Death Model Adjustments For 2012
Birth Death Model Adjustments For 2013
Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.
In general, analysts attribute much more to birth-death numbers than they should. Except at economic turns, BLS Birth/Death errors are reasonably small.
For a discussion of how little birth-death numbers affect actual monthly reporting, please see BLS Birth/Death Model Yet Again.
Table 15 BLS Alternate Measures of Unemployment
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Table A-15 is where one can find a better approximation of what the unemployment rate really is.
Notice I said "better" approximation not to be confused with "good" approximation.
The official unemployment rate is 6.7%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
U-6 is much higher at 13.1%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.
Labor Force Factors
Were it not for people dropping out of the labor force, the unemployment rate would be well over 9%.
And the discrepancy between the Household Survey and the Establishment survey sticks out like a sore thumb.
Mike "Mish" Shedlock