There was good news: The unemployment rate dropped to 6.7 percent, the lowest since October 2008.
There was bad news: The economy added just 74,000 jobs, the lowest since January 2011.
And there was confounding news: The participation rate—the share of people working, or looking for work—fell to its lowest point since 1978.
So, yeah, this was the weirdest jobs report in recent memory. Let's un-weird it, as much as possible.
(1) Where are the jobs? A steady year ended with a whimper. We added 180,000 jobs per month in 2013, and most economists suspected that growth would accelerate into 2014. Instead, December came in 60 percent below our recent average and even further below analyst expectations.
Why? I won't even try to guess, and neither should you. These numbers are subject to revisions in the next two months: That 74,000 today could be raised to 174,000 in March. Maybe exceptionally bad weather depressed job creation in construction and other industries? Maybe. But no matter how you look at it: weird.
(2) What happened to health care? Employment in the health-care sector declined by 6,000 in December. Why is that strange?
One ironclad law of the economy is that, rain or shine, boom or bust, health care jobs just keep growing. Here's the graph of health care employment since 1990 (as far back as FRED data goes). It's straight as a ruler. In the last 300 months, you know how many times the health-care sector hasn't added jobs? Zero. Not once. Until now.
Health care costs have been slowing down because of (a) the recession; (b) the growth in high-deductible plans; (c) fewer expensive drugs and technologies pushing up the price of care; (d) Obamacare; or (e) all of the above and more. That's good news for our long-term fiscal picture, since health care costs are supposed to eat the entire federal budget if they don't moderate. But cost control is the enemy of employment—not only at large corporations, but also in large industries like health care.
(3) Seriously, what's happening to the participation rate? The most important story of this jobs report—and, perhaps, of the entire labor market—is why so few people are actually working or looking for work. In 2013, the population grew by 2.4 million people, and the labor force declined by 500,000. That's just weird.
But there has to be a reason, and it starts with Father Time. As a general rule, older people are less likely to work. So when a country like the U.S. gets older, it's natural for a declining share of its population to "participate."
Demographers anticipated the boomers getting older, but they didn't expect participation to fall off a cliff like it has. Here's a stark graph showing the levels that BLS projected in 2007 (in BLACK dots) versus the participation rate collapse since the Great Recession (in BLUE squigglies). Something's up...
... and that something is mostly the Great Recession, which has depressed participation through several channels. Given the bleak opportunities in the economy, some men and women have decided to do other things—and those things have mostly involved not working.
In particularly, young men are working less. The participation rate of guys between 18-24 has fallen by 15 percentage points since 1990, more than any other group. Maybe they don't have anything to do: One study found that nearly 40 percent of the increase in non-working Americans between 2000 and 2011 "can be attributed to manufacturing decline." The housing boom temporarily moved some jobs to construction. But after the bust, they disappeared for good, leaving men with nothing to do but sit around and maybe file for disability insurance, which has vastly increased in the recession.
Another important factor depressing the rate is that more young people going to college: That means 18-24-year olds are less likely to participate in the labor force. This is a long-term trend, but it's probably been accentuated by the recession, which reduced the opportunity cost of leaving the workforce to go to school.
The upshot of this jobs report, and every jobs report, is that one data point shouldn't overshadow the long-term trends. Today was murky. But the long-term picture is clearer. The labor market is recovering steadily, but slowly. Participation is declining faster than we anticipated not only because older people are getting older but also because younger people are working less. And health care is going through a period of moderating growth.