The jobs report is coming up roses.

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Thursday, January 10, 2019

Forbes
Jobs Report: All Upbeat In Every Way
By: Milton Ezrati

Commentators who revel in contrary detail will only find frustration in the December jobs report. From top to bottom, the Labor Department offered exclusively upbeat figures. Even the slight rise in the unemployment rate failed to detract from the picture of economic health. The rate remained low by historic standards and resulted more from a remarkable flow of new job seekers than from layoffs. Though low unemployment might suggest a labor constraint on the economy, the report also made clear that still large reserve of potential workers should give the economy a future flow of needed labor power for some time to come. Further into the future, labor shortages may very well stymie growth, but that difficulty is still a ways off.

The most striking feature of the report is the number of new jobs recorded in December. Some 312,000 more Americans found work during the last month of the year, most in the private sector, which increased employment by 301,000. Of course, any single month’s figure is suspect, but the average for the last three months, a more reliable gauge of underlying trends, comes to a monthly average gain of 254,000 jobs, a pace of over 3 million a year, an improvement over last year’s rate of job creation and a vast difference from the way things looked in the earlier years of this recovery. Still more encouraging is how employment has grown in most industries. The Labor Department’s so-called “dispersion index” showed that 70% of the 258 industries it tracks increased employment during the month, up from some 65% three months ago, and a remarkable change from the pattern exhibited earlier in this recovery.

Unemployment did rise slightly, jumping from an inordinately low 3.7% of the workforce in November to a still historically low 3.9% in December. The increase emerged in the absence of significant layoffs. Rather it reflected a flow of some 419,000 new job seekers that outstripped even the impressive employment gains. Clearly, the improved jobs market is drawing people into the search for work. Some 63.9% of the civilian, working-age population was either employed or seeking employment in December, up from 62.9% in November and 62.7% in December 2017. These look like small changes, but, given that the percentages are calculated off a base in over 260 million people, the gain from a year ago involves a 2.6 million increase in those ready for work.

Even as this new flow of people enlarges the workforce, it is apparent that employment gains have tightened the jobs market from the abysmal state that had prevailed earlier in this recovery. One clear sign emerges from the numbers of workers who have voluntarily left their jobs. This December report indicates that 113,000 have left their jobs of their own free will to seek better opportunities. Little can give a clearer sign of people's confidence that opportunities exist. Wages offer still another sign of a seller’s market for labor. Average hourly wages have risen more than 3.2% over the past year as have average weekly wages, outpacing inflation by a significant margin. Sometimes these figures jump because business relies on overtime. But that is not the case now. Average weekly hours have remained steady at 34.5 all year. These wage gains lie in basic pay packages, a sharp break from the stagnation that had prevailed during most of this recovery. 

Also encouraging is how over the past year unemployment rates for just about every group tracked by the Labor Department have fallen, adult men and women, teens and every major ethnic and racial group. Asians are the only exception. Their unemployment rate has risen from 2.5% a year ago to 3.3%. Probably, this difference reflects how new immigration is a larger percentage of this group than others, though current figures to support such a supposition are not yet available. Another sign of a tightening jobs market is how the greatest improvements have occurred among the less skilled. Those with less than a high-school diploma have seen their unemployment rate fall from 6.3% a year ago to 5.8% last December. The same happened all the way up the education ladder except those with a bachelor’s degree or better. They saw no improvement but held to their remarkably low 2.1% unemployment rate.
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In past cyclical recoveries, these impressively low unemployment rates would have given cause for concern that the economy might run out of the labor power it needs to sustain future growth. The wage increases might have added a worry over a wage-price spiral in which labor’s power to procure wage hikes prompts business to cover costs by raising prices that wages then chase causing still more price hikes. Some have openly voiced such concerns including people at the Federal Reserve (Fed). Without dismissing these points out of hand, there are differences in this environment from the historic experience, and this brings the conversation back to participation rates. 

Recent increases in participation hardly have exhausted the reserve of labor presently available to this economy. During the great recession of 2008-09 and the long, slow recovery that followed through 2016, jobs growth was so slow that vast numbers of workers gave up the search for paid employment. Some went back to school. Others depended on government relief.  Still others worked part time just enough to make ends meet. Overall rates of participation in the labor force fell precipitously, from almost 68% in the earlier years of this century to lows in 2015 of 62%. As in the earlier comparisons, these differences look small, but on a base of the entire working age, civilian population, they amounted to a withdrawal of 15 million workers from the economy. Women in particular left the workforce. Among prime working-aged women, those between the ages of 25 and 54 years old, participation rates dropped from 76.6% before the great recession to a low of 73.3% in 2015, alone a loss to the workforce of 2.4 million.

These once frustrated job seekers have only just begun to return, the women and others. Because of improving employment prospects and rising wages, participation overall, as already noted, has climbed. The shift has been especially marked among women in that prime working-age cohort. Their participation has climbed from those 2015 lows to 75.2% recently, just over 2 million more either employed of seeking work.  Were participation for this group to return to its former high of 76.6%, just this one important part of the labor force would provide the economy with an additional 1.4 million workers. (For a complete discussion of work patterns among this important group see this post.) The potential clearly exists for increased participation rates among younger and older women as well as men in every age cohort. From today’s already improved overall participation rates, a return to the recent high of just over 68%, would give the economy some 13 million additional workers, many of them skilled.

Eventually, the labor worries alluded to above will have a basis in reality. Shortages of both skilled and unskilled positions will stymie further growth, as will the burden of rising wages on business decision makers. But as should be apparent from this perspective on the December picture, the U.S. economy is a ways from such a difficult juncture. It is highly unlikely to bite this year and perhaps not even in 2020. A growth interruption is entirely possible before then, of course, from a trade war perhaps or some shock from abroad or perhaps from mistakes in Washington, always a major risk. But where labor is concerned, the troubles will wait quite a while yet.

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