The December Jobs Report Marks a Turning Point
by: Cliff Waldman, Chief Economist
Good News, Bad News
From data clarity comes policy clarity. While the December jobs report shows that labor market performance remains steady, there are significant concerns that are not going to abate on their own. It was a good year for those seeking work. Employers added a net 2.2 million new jobs to their payrolls. This is slower than the 2.7 million added in 2015 and the 3 million added in 2014. It is nonetheless an encouraging performance given that the employment recovery began in earnest six years ago and has been confronting sluggish and volatile economic growth.
Global troubles are haunting U.S. job performance, however. As noted by the Bureau of Labor Statistics, U.S. manufacturers shed a net 63,000 jobs from their payrolls since January 2016. While the year ended on a hopeful note, with a net gain of 17,000 jobs in the factory sector, this appeared to be a bounceback from four consecutive monthly declines. Weak global growth, a 14-year high on the broad dollar, a dramatic fall in energy prices, and weak domestic capital equipment spending have all played a part in the manufacturing job loss. Attention must be paid. The industrial sector often creates good-paying jobs and jobs for those who may not have had the opportunity to go to college.
Labor Force Participation Remains at its Lowest Rate Since the Late 70s
Of broader concern, it is remarkable that the labor force participation rate, at 62.7% in December, has not budged one bit since January. It remains at the lowest level since the late 1970s. Analysts have been writing about the socially corrosive impact of having certain cohorts who are simply sidelined from the workforce—neither working nor looking for work. This puzzle clouds our reading of the labor market. With a 4.7% unemployment rate, many are tempted to talk about “full employment.” But with so many sidelined from the labor force, this is a questionable concept. We need to know more.
This is a turning point. If we look past the monthly jobs numbers and attack the difficult structural issues in our labor market—low participation, weak manufacturing jobs, and weakening labor productivity growth—then, within the realistic constraints of changing demographics, we can give a shot in the arm to what has been a sluggish recovery from the 2008-2009 crisis. We don’t have to accept a subpar picture. But it’s not going to change on its own.
The Importance of the Monthly Jobs Data
While the monthly jobs report receives disproportionate attention as a result of social and political sensitivity, there is another compelling reason to carefully monitor these important labor market numbers.
In sharp contrast to so many other economic data series, the jobs numbers are far less burdened by difficult volatility, which often requires averaging, guessing, and adjusting. The monthly job creation numbers do bounce around, but even they are clear in terms of basic direction. And the more structural indicators of labor market status, such as the labor force participation rate and the employment to population ratio, are slow-moving, almost to a fault.