Payrolls rose 203,000 last month and the unemployment rate fell from 7.3% to 7%, the lowest it has been since late 2008, according to this morning’s jobs report from the Bureau of Labor Statistics. It looks like a solid report, with job gains in most industries, a falloff in involuntary part-timers, a tick up in both the labor force (in part due to government workers returning from the October shutdown) and weekly hours, suggesting strengthening labor demand.
In recent months, the decline in unemployment has often actually been a bad sign as it occurred because job seekers gave up hope and left the job market. In November, the 0.3 point decline in the jobless rate was instead driven by people getting jobs, as the labor force increased, a point I return to below. However, part of this, as noted, was a bounce back from last month’s report when the October government shutdown was in play.
In that regard, November’s decline in unemployment is a good sign, but with the caveat that it reflects a significant number of people just coming back off of a short furlough. As the BLS commissioner noted, “Among the unemployed, the number of persons on temporary layoff declined by 377,000 in November, largely reflecting the return of federal workers who were furloughed in October due to the partial government shutdown.”
Averaging over the past few months helps to separate the underlying signal re net job creation from the statistical noise inherent in monthly surveys (there’s noise in all survey data but in “high frequency data”—releases that come out over short time intervals—there’s more). Over the past three months, payroll gains have averaged 193,000 per month. Averaging over the past 12 months, the average is about the same: 191,000 per month.
That is a decent/moderate trend, fast enough to consistently, albeit slowly, drive down the jobless rate.
One particularly important number from this morning’s report is the share of the working-age population in the labor force (meaning they’re either working or looking for work). This is the labor force trend that concerns me the most (OK, it’s tied with, and intimately related to, high long-term unemployment): the LFPR (labor force participation rate) has been trending down since the recession hit in late 2007 (see figure). In October’s report, which reflected the impact of the government shutdown for part of that month, the rate took a large 0.4 percentage-point hit, and I wondered if that was partly a function of noise in last month’s Household Survey.
This month that large drop was partly reversed, as the LFPR ticked up 0.2 points. Of course, that doesn’t change the trend which remains a source of real concern. If our labor force fails to regain most of the losses shown in the figure, that will impose a constraint on both future living standards of working families and macroeconomic growth.
There are two notable policy issues in play regarding today’s report. First, Congress is arguing about whether to support another extension of unemployment insurance. While a stronger jobs picture might suggest this extension is less necessary, I disagree. Long-term unemployment remains high in historical terms—much higher than when former UI extensions were legislated. And note that this measure actually ticked up last month, from 36.1% to 37.3%. The reason for the tick-up was that while there were fewer unemployed, the number of long-termers held steady at 4.1 million. Policy makers must not conflate an improving labor market with a healed job market. Until job opportunities are more robust, the extension is needed, both for the sake of the long-term jobless and the macro-economy (since UI has a large multiplier).
Second, I suspect the markets will view this report as supporting a December taper by the Federal Reserve. I’ve consistently been skeptical of this call, and have not expected a December move to reduce their asset buys. But with today’s stronger than expected report, I think there may be something to it. My December taper prior was 40%; now, like a good Bayesian, I’ve updated it to 55%.