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As per the data leased by the Labor department, the fall in employment last month was mostly driven by a plunge in construction jobs and a drop in state and local government hiring. Although manufacturing employment increased, employers squeezed more out of existing workers by making them work more as is reflected by the increasing average work week (average workweek for all employees on private nonfarm payrolls was up by 0.1 hour to 33.9 hours in January, with the manufacturing work week rising by 0.3 hrs to 39.9 hrs). In fact, since June, the manufacturing workweek has increased by 1.2 hours. The factory overtime increased by 0.1 hour over the month. Not surprisingly the productivity has been rising.

The extent of the problem can be gauged from the fact that the number of long-term unemployed (those jobless for 27 weeks and over) continued to rise in January, reaching 6.3 million. Since the start of the recession in December 2007, the number of long-term unemployed has risen by 5.0 million. Getting job has become so difficult now that the average duration of unemployment has crossed 30 weeks for the first time, meaning people who lose job, remain unemployed for an average of seven months plus, and that’s big. Not surprisingly, the number of discouraged workers (as part of what is called marginally attached) increased to 1.1 million in Jan’10 as against 0.7 million in Jan’09 and the remaining 1.5 million people marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Hence the drop in unemployment number, despite in unemployment is more technical in nature as some section of the unemployed (who were surveyed) have not looked out for jobs during the past 4 weeks (the period on the survey) and hence did not qualify as unemployed.

While this anomaly might be rectified next month, unemployment rate might not increase much next week given the firms have now become so lean (by cutting headcounts and increasing productivity of the remaining), they would need to add some workers as inventory restocking starts.

However, unless the demand picks up to sustain rising production from mere restocking to meeting rising demand  (which is quite unlikely), the economy is shaping up for rising levels of unemployment a few months down the line.

In any case, the actual level of unemployment is much higher, if we take a more logical gauge of unemployment, which is reflected in the U6 (U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force) numbers and not simply U3 (Total unemployed, as a percent of the civilian labor force (official unemployment rate). The U6 rate is now as high as 16.5%.