The Dismal Science

Jobs are growing! The unemployment rate is shrinking! But all is not well:

The economy added only 36,000 jobs in January — falling far short of expectations. Meanwhile, the unemployment rate sunk to 9%, down from 9.4% the month before.

Economists surveyed by CNNMoney were expecting the economy to add 149,000 jobs during the month, and the unemployment rate to rise to 9.5%.

If those numbers don’t seem to add up (“They expected higher unemployment with more jobs?”), maybe this will help explain the discrepancy:

The Labor Force Participation Rate declined to 64.2% in January (blue line). This is the lowest level since the early ’80s. (This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years.)

The jobless, in other words, are simply giving up. And if all that weren’t dismal enough, let’s go back to the first story’s conclusion:

The Labor Department also revised payroll numbers for 2010. Eight months were revised downward, by a combined total of 298,000 jobs. Four months were revised upward, adding 83,000 jobs to the 2010 tally.

Overall, there were 215,000 fewer jobs added in 2010 than previously reported.

The labor market typically needs at least 300,000 job gains each month to make a difference in the unemployment rate, economists say, and at least 150,000 to keep pace with population growth.

So how do we get out of this hole? Maybe like so:

The productivity of U.S. businesses climbed a seasonally adjusted 2.6% in the fourth quarter as labor costs fell again, according to the latest government data.

For all of 2010, the Labor Department reported that U.S. productivity grew 3.6%, marking the fastest increase in eight years.

The part of the economy that’s working, is really working. But the economy’s job-creation engine — entrepreneurs — has effectively Gone Galt, and no amount of string-pushing or dubious tax incentives are going to bring them back.