Jobs Report: First impressions

March 6th, 2015 at 9:09 am

[Seasonally adjusted, it’s an average day outside, but aside from that there’s snow everywhere and it’s messing up my morning. So in order to make it to MSNBC discussion about the jobs numbers (~10:30) this initial take will have to be shorter than usual. I’ll add to it later in the day.]

In yet another installment of the solid jobs reports we seen in recent months, February’s payrolls were up by 295,000 and the unemployment rate ticked from 5.7% to 5.5%, the lowest it has been since mid-2008, according to this morning’s job market update from the BLS.

Still, while there’s no doubt the labor market is improving, and doing so at a faster clip than in recent years, there are still missing ingredients suggesting that the US job market is not as close to full employment–a truly tight matchup between jobs and job-seekers–as the low jobless rate suggests.

The good news is clearly the pace at which employers are adding jobs on net. Because the monthly data jump about a bit, what you want to do is smooth out some of the monthly bips and bops by averaging payroll gains over the short, medium, and longer term, as I do in the monthly jobs day smoother, shown below.

Over the past three and six month periods, payrolls are up about 290,000 on average; that’s 3.5 million jobs per year if it sticks, and as you can see, an acceleration over the 12-month average.


Source: BLS, my calculations.

So what’s not to like? Two things: wage growth and labor force participation, though the latter is stable, which is an improvement over its earlier declining trend.

Wages: Even as the job market has clearly improved, nominal (the distinction between nominal and real is important here) wage growth has been a salient missing ingredient from the recovery. Very low inflation–last seen the yearly pace of the CPI was -0.1%!–means even a little bit of nominal growth improves the real buying power of the paycheck. Even if your employer keeps paying you $400/week, if the price of a tank of gas goes down, you’re better off in real terms.

Still, a truly tightening labor market should be prompting some wage pressures as employers need to bid up wage offers to get and hold on to increasingly scarce workers, so the fact that nominal wages have been growing for years now at a steady and low 2% rate has led me to question just how tight the job market really is.

According to the most recent Beige Book–the Fed’s informal survey of businesses across the land–employers are reporting some wage pressures.

And yet today’s jobs report showed average hourly earnings up 2% once again, in lockstep with the long-term trend and down slightly from the 2.2% pace in January.

The fact of more people working more hours per week, along with about zero inflation, means real weekly paychecks are up significantly, so living standards should be improving. But such low-inflation will not last–and can itself be a sign of underlying weakness (though it’s still largely an energy story)–and families can add only so many hours before facing real stressors trying to balance work and family.

Labor force participation: The unemployment rate fell in part because more people got jobs but also because the labor force contracted. These monthly numbers are particularly noisy, so the trend is key, and it shows the share of the population in the labor force bouncing around 63% (it was 62.8% last month) for over a year. That’s down from a pre-recession peak of around 66%, a large drop in a key indicator.

Extensive research has shown the part of the decline in labor force participation is due to aging boomers leaving the job market, but that’s not the whole story. The punchline here is that we very much need to hit and stay at full employment to pull working-age people back into the labor force. Stabilization of the lfpr is a good sign; but there’s room for it to tick up some as well.

More to come…

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5 comments in reply to "Jobs Report: First impressions"

  1. foosion says:

    Odds are the Fed will raise rates and stop all this silliness about full employment and higher wages. From their public statements, they’re champing at the bit. 🙁

  2. Aaron Morrow says:

    Is it misleading to look at employment-population ratios?

    16+ population (59.3% for Feb, historical max 64.7%, recession min 58.2%):
    3M ave: 59.3%
    6M ave: 59.2%
    1Y ave: 59.1%

    25-54 population (77.3% for Feb, historical max 81.9%, recession min 74.8%):
    3M ave: 77.2%
    6M ave: 77.0%
    1Y ave: 76.8%

    Clearly, there is a bigger gap between the two than the was before the recession, which may not be a problem.
    Still, even the 25-54 EPR has recovered about 30% of the gap between the recession minimum and the full employment maximum. (Better than the 18+ EPR recovery of 15%, but still illustrating a serious unemployment issue.)

  3. urban legend says:

    What makes it even less positive is that there is no reason to think the historical maximum (64.7%) reached in 2000 had to represent a maximum potential figure that could never again be exceeded or even achieved. In fact, there was a long-term secular trend of an increasing employment-to-population ratios from decade to decade. Through the 1960s, 70s, 80s and 90s, we had two forces driving those percentages upward: entry of the baby boom generation into the working age population and women entering the (official) work force. From e-pop rates between 55-56% in the late 1950s and early 1960s, we saw rates at the turn of the 21st century that were almost 10 percentage points higher. That, people, represents between 20 and 25 million more people in the work force than would be there if the old rates had continued. And lest we think we can dismiss that 64.7% high point in 2000 as some kind of one-off fluke, we had employment rates that were over 64% for 41 of 42 consecutive months.

    While the increase in rates slowed in the 1990s — reflecting the slowing down as driving forces of the baby boom and feminism factors — there still should have been some underlying growth as more educated young adults replaced less educated retiring adults in the working age group, especially in the South. Rates in northern tier states like Minnesota and the Dakotas with low poverty and high education achievement reached near or above 70%, suggesting a peak of how many people will take jobs if they can when jobs are plentiful. That’s what happened in northern European countries with similar working cultures, as many countries whose rates trailed the U.S. in 2000 passed us in the “aughts” and have stayed higher since. It is noteworthy that even France has a significantly higher employment rate in the prime working age group (25-54) than the U.S.

    It would be nice to be able to gloat a bit over the growth in jobs under Obama after the disastrous policies of the Bush administration, but that is a potentially dangerous path for any candidate running for office. The people may not know the e-pop (far below the peak as Aaron shows) or the U-6 (11% vs a best-ever 6.9% in 2000), but they know what they experience and they know the labor market is still very weak.

    Any candidate (are you listening, you know who?) who tries to tout what has happened so far as if we just have to continue with what we are doing will be seen as out-of-touch. The voters need an economic story that makes sense and shows the candidate has a handle on what has been going wrong for 15 years — weak demand because incomes are too low and too many people whoi have proved they want to work aren’t working — how the Republicans have been deliberately preventing anything that would help, and how she (or he) will fix it. It is hard to see how a full-throated commitment to a policy goal of “Full Employment” as Jared and Dean Baker have been promoting could be a political loser. Not just “jobs” — even Republicans say they are for jobs — but a way of talking about them that ties into the story.

    • urban legend says:

      “But, but, but, splutter, splutter. . . what about the deficit?”

      Answer: “Full employment will take care of deficits. It has before and it will again.” Period.

  4. Name says:

    My 1990s experience says that stigma keeps many people out of ‘participation’. I recall reading circa 1997 that once employers became desperate enough, many were ‘surprised’ to discover that ‘welfare mothers’ (the untouchables) were more reliable that the usual hires.
    Also age is either stgma and/or true partial disability. Older people often will never be hired again. Once laid off, that’s it. Older people must run their own business or consultancy. Both require efficient sales technique, and few people are psychologically built to do sales.