By Matt McDonald, (202) 822-1205, mmcdonald@hamiltonps.com

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The good news? There are again more jobs in the latest economic data. The bad news? Once again, there are fewer people in the workforce applying for them.

As we noted in our preview yesterday, there remain concerns about a shrinking labor force, with both political and economic implications over the coming year. The December jobs report mirrored the November report in this respect, with incremental improvements in jobs data, and a shrinking labor force in the details.

We can assume that many of these people who have dropped out of the labor force during the recession would like to be working. At some point, they will re-enter the job market. When that happens, we are likely to see the unemployment rate go up for a period before again declining. Politically, the President’s reelection campaign would like to see this happen sooner than later; economically, we have not yet reached that point.

Because the labor force declined, and the household survey data was not quite as good as the employment survey data, the jobs per month that the President needs to get unemployment below 8 percent by Election Day has increased slightly from 254,000 per month to 262,000 per month.

The real question that will impact our estimates is when people start re-entering the labor force. Next month the jobs report will include the annual population revision. We’ll be watching that for more clues on what to expect from the jobs market between now and November.

Matt McDonald is a partner at Hamilton Place Strategies and a veteran of two Presidential campaigns and the White House. Prior to joining HPS, Matt worked for McKinsey and Company. He holds an MBA from MIT’s Sloan School of Management and a degree in economics from Dartmouth College.