Wow: The real unemployment rate - the one that counts workforce refugees - is dropping like a stone

The Wall Street Journal had a surprising bit of information the other day, one that probably escaped the notice of most people but is in fact a very important indicator of our economic vitality. We've often talked here about the fact that there are two unemployment rates, and that the one we usually hear about is misleading. The U-3 unemployment rate is the one that ignores those who have stopped looking for work. This rate is now a very low 4.1 percent, but as we've told you before, that doesn't mean much if it ignores millions of people who are also not working and aren't even trying to find jobs. The U-6 unemployment rate, on the other hand, takes account of these people, and it's typically much higher than the U-3. If you really want a sense of the employment picture, you need to look at the U-6 rate - but usually the one we hear about is the U-3.

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In recent weeks, however, something surprising has happened. Apparently people are re-entering the workforce, and the result is that the gap between the two rates is the smallest it's been in 10 years:

The leveling of the unemployment rate coincided with a jump in Americans entering the labor force. The U.S. labor force grew by 3.02 million workers in the 12 months ended in September 2016. That was the largest increase in a 12-month span, outside of Census hiring, since the late 1970s. In the past year, labor-force growth cooled considerably, increasing by 738,000 from a year earlier as of October. As more Americans exit the labor force via retirement, it will be difficult for the U.S. to significantly grow its workforce. With the labor force growing slowly and hiring progressing at a steady clip, the unemployment rate is trending lower. That’s not to say that all workers are satisfied with their pay, hours or position. But simply, the job market has become healthy enough to provide a job to nearly all the people seeking one.

This can't all be attributed to Trump policies because it started in September 2016. And we've talked before about the fact that economic trends are often attributed far too much to what politicians, particularly presidents, do. That applies here as well.

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Even so, the fact that the trend has sustained itself for a year after going the other way for 10 years suggests something is different. Obama's policies were notorious for their disincentives to work. They made it easier to get benefits like food stamps or health insurance without working, and also made it easier to stay on unemployment well past the intended time limit. Meanwhile, Obama's union-friendly National Labor Relations Board made it harder for employers to price their labor correctly and created incentives to automate or outsource work. The result of that was that many people didn't feel the jobs available were a good fit for their skills or for their financial needs. What has Trump done to change things? The biggest single move may be his reversal of Obama's executive orders limiting domestic energy production. That has spurred considerable economic activity and created good-paying job opportunities that may have lured people back into the workforce after they believed for years there was nothing worth pursuing. A less tangible but still important factor is the mere fact that Trump doesn't seek ways to attack business like Obama did. That's making business owners more confident they can invest, expand and hire because they don't feel there is someone in the White House waiting to clobber them if they succeed. I'm sure there are many other factors as well, which have nothing to do with politics, but the bottom line is that people are re-entering the workforce. Whatever is causing that to happen, it's long overdue and badly needed.

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