January jobs: “Goldilocks” rising–the labor market is strengthening at a faster clip but without inflationary pressures

February 6th, 2015 at 9:21 am

Payrolls were up a solid 257,000 last month and strong upward revisions to prior months’ payroll gains reveal an uptick in the pace of job creation in recent months. Wage growth got a slight bump and the labor force participation rate ticked up as well, in what is a uniformly impressive jobs report, another in steady line of reports showing that the economic recovery has reliably reached the labor market. While we are clearly not yet at a full employment economy, characterized by a very tight fit between the number of job seekers and jobs, we are moving in that direction.

Over the past three months, payroll growth has averaged 336,000 per month. A year ago, the comparable number was 197,000. My patented jobs day smoother, shown below, also captures the recent acceleration in net job creation, as the three month average is notably above that of six and 12 months.

Unemployment ticked up slightly, to 5.7%, as more people entered the job market than found employment. But especially given the accelerated pace of job creation, this is good sign, signaling the potential return (we don’t want to over-interpret one month’s move in this noisy series) to the labor force of sideliners who’ve been waiting for better prospects. The labor force participation rate ticked up 0.2% in January, replacing a decline of the same magnitude in December. At 62.9%, this important indicator has clearly stabilized at about 63%, where it’s been wiggling around for about a year now. That level remains three points below its pre-recession peak, and is thus symptomatic of remaining slack in the job market (there are also still close to 7 million involuntary part-timers who’d like full-time work, another indicator of ongoing slack). Still, its stabilization is good news.

Hourly wages, which fell in December, rose 0.5% in January and were up 2.2% over the past year, compared to 1.9%, Dec/Dec. Given recent gains in weekly hours worked, weekly earnings are up 2.8% over the past year. Moreover, with energy prices holding back inflation, up only 0.7% when last seen, this translates into some of the first solid real wage growth in the recovery.

There is an important caveat here: nominal hourly wage growth is not accelerating in any identifiable way. As I’ll show later today, this result holds over various wage measures. At the same time, as noted, price growth is slowing, and not just “topline” inflation, but also core inflation, the Fed’s preferred measure.

Thus, from the perspective of Federal Reserve policy makers, the current economy is building up some pretty solid “Goldilocks” credentials: GDP growth is stable at around trend, the job market is reliably tightening, yet neither wage nor price growth are signaling inflationary pressures. It is thus critically important to recognize that we are not yet at full employment, and even if we get there, we’ll need to stay there to repair the considerable residual damage still with us from years of deep recession followed by what began as a weak recovery.


Source: BLS, my analysis.

[Data note: today’s report included various revisions to both the surveys of households and firms. The payroll survey annual benchmark revision raised the level of payroll employment slightly, by 91,000, as of March of last year. The household survey revisions did not affect changes in rates cited above.]

Print Friendly, PDF & Email

4 comments in reply to "January jobs: “Goldilocks” rising–the labor market is strengthening at a faster clip but without inflationary pressures"

  1. Fred Donaldson says:

    Your readers may be heartened by a report today on Fox News that revealed high tech companies are replacing American workers with H1-B imported labor. The amazement this morning (2/6/2015) that Americans were training Indian workers, who would replace them, brought on a slew of progressive comments, including reference to laws that forbid this type of behavior – importing workers and displacing Americans as a direct result. The report also noted that regulations against such abuses have been ignored by both Democrat and Republican administrations.

    Better very late than never, but I think a phone call will come from on high that says “cool it on that subject.” If not, there is a new ally in our efforts to create more good-paying American jobs. One can hope.

    • Smith says:

      Bullet style
      * The so called reform bill would vastly expand (double/triple) H1B and H1B style immigration.
      * H1B visa holders have no labor rights, without employer sponsorship, they aren’t admitted, if they’re let go, they’re deported, they need their employers annual renewal, up to six years and longer, or their also out.
      * Half of H1Bs are tech, but all occupations are affected. If tech wages increase, workers in other fields enter job market, creating tighter market for everyone.
      * Tech workers have a special exemption since 1996 which prevents them from being considered non-exempt, because of course they are the new factory workers http://www.dol.gov/whd/overtime/fs17e_computer.pdf

  2. urban legend says:

    U-6 ticked up, employment-to-population ratio barely budged and is still only one percentage point up from the depths after a five-to-six percentage point drop (representing a drop of 13-15 million jobs from an already sketchy labor market), and involuntary part-time has stayed at nearly double what it was in 2000 even after adjusting for population growth. “Strengthening” just does not seem like an appropriate word.

    The administration wants to cheerlead and emphasize the positive, while paying lip service to the notion that the good there is is not enough. Ronald Reagan could get away with that crap, but the media structure today will not let Democrats establish a positive storyline until there are no “buts” to qualify the good news. Trying to do the “Morning in America” thing only makes Obama and Democrats in general continue to look out of touch.

    The true storyline is that Democrats have proposed legislation that would go a long way towards finishing the job and creating something that looks like full employment with widely spread wage gains. But, in fact, the Republicans in Congress have determined they they simply will not cooperate with anything that would be good for the country if Democrats might benefit from better times. It may be that the Washington Post and fellow travelers will try to make the Democrats look like whiners. What that means is not to cower in the corner for fear of what Fred Hiatt and his stable of pundits will say, but because the story is the unassailable truth, you cannot shy away from sending the Republican obstructionism message over and over. When the press refuses to support the truth, then the press must be made into the enemy of the people, too.

    The Democrats to figure out how to step away from the cant that passes as political communication these days. They need to find a whole new way of talking to the American people if they are going to regain a workable advantage. A lot of it involves education, and a careful look at FDR’s fireside chats gives a hint of how to do that. They are remarkable for the way FDR delved into the thinking behind his proposals and why he thought thy would work. We don’t have fireside chats of any significance anymore, but we do have one more State-of-the-Union and other vehicles for reaching tens of millions of people. Democrats need to be planning carefully how over the next two years they are going to convince millions that Democratic policies will solve our biggest problems.