November jobs report shows continued growth

The penultimate jobs report of the Obama era is a timely reminder that President Obama is handing off a healthy economy to his Tea-Publican successor. Steve Benen reports on the November jobs report. Unemployment rate drops to lowest point in more than 9 years:

The Bureau of Labor Statistics reported this morning that the U.S. economy added 178,000 jobs in November. The unemployment rate, meanwhile, continues to improve, dropping from 4.9% to 4.6%. It’s the 14th consecutive month the rate has been at 5% or lower – and the lowest jobless rate Americans have seen since August 2007.

As for the revisions: September’s job totals were revised up, from 191,000 to 208,000, while October’s were revised down, from 161,000 to 142,000. Combined, that’s a net loss of 2,000.

NovemberJobs

Over the last 12 months, the overall economy has created 2.25 million new jobs, which is a pretty healthy number. And with one month remaining in 2016, the U.S. remains on track to create over 2 million new jobs this calendar year. What’s more, November was the 74th consecutive month of positive job growth, which is the longest on record.

Remember, as far as Republicans are concerned, results like these were completely impossible. For the right, the combination of the Affordable Care Act, higher taxes, and assorted regulations would stifle job growth and push the economy into a recession, but the exact opposite happened. Nevertheless, Donald Trump and GOP lawmakers believe they’ll “get the economy moving” by undoing the policies that pushed the unemployment rate to a nine-year low. Now that Republicans are poised to take complete control over federal policymaking, we’ll see how that works out.

Here’s another chart showing monthly job losses/gains in just the private sector since the start of the Great Recession.

NovemberPrivate

Jared Bernstein adds, Another solid jobs report, but wage growth NOT pushing up price growth (so chill, Fed…):

Payrolls were up 178,000 last month and the unemployment rate fell to a nine-year low of 4.6 percent, in yet another installment of solid, monthly job reports. Wage growth was flat in November, manufacturing jobs are down, and the labor force contracted slightly, so the report was not uniformly positive. But the job market continues to close in on full employment, and the Federal Reserve is unlikely to see anything in today’s report to prevent them from tapping the brakes with an interest rate hike at their meeting later this month.

Below, however, I argue that the absence of inflationary pressure should make them think twice before slowing a labor market that’s finally delivering jobs and (looking at the trend versus just November’s data) wage gains to workers who’ve long been left behind.

Also, in today’s write-up, I feature a quick comparison of two job markets: the one inherited by president-elect Donald Trump and the one inherited 8 years ago by Barack Obama. The difference is really something.

Smoothing out the monthly bips and bops, we see that the 178,000 payroll gain is very much in lockstep with the underlying trend in the pace of job creation. As revisions slightly lowered gains in the prior two months, the patented JB smoother shows that average monthly job gains in the last three months were 176,000. That’s a slight deceleration from the 205K pace over the past 6 months, but broadly speaking, we’re adding north of 170K jobs per month this year, a pace of job growth that should be plenty fast enough to keep the job market on target for reaching full employment at some point later next year.

Smoother_Dec

But isn’t 4.6% unemployment at or below most people’s definition of the lowest unemployment can go without triggering spiraling price growth? Yes, but there are very important mitigating factors.

–The underemployment rate, which also fell last month, is, at 9.3%, still well above its full employment level, which I judge to be around 8.5%. This rate captures slack that’s not in the headline rate, including involuntary part-time workers. As the job market tightens, the number of such workers is solidly trending down (down about 400K over the past year, to 5.7 million), a clear and positive symptom of job market improvement. But this key indicator is still too high.

–The labor force participation rate is still too damn low. As noted, the labor force contracted a bit last month and this contributed to the decline in unemployment. While the size of the labor force is a very noisy monthly number, it should be noted that the less noisy participation rate remains, at 62.7%, historically low. Some of that has to do with demographics and retiring boomers. But the employment rate of 25-54 year-olds is still only slowly climbing back to pre-recession levels, and 8 years into the recovery, has only regained 60% of its recession-induced loss.

–Perhaps most importantly from the Fed’s perspective, wage growth is NOT bleeding into price growth (see below).

The report, as noted, includes a few less positive results. Manufacturing remains a real weak spot. Employment in the sector is down slightly each of the last four months, including 4,000 last month. This year, factory sector jobs are down 60,000; over a comparable period last year (Jan-Nov, 2015) they were up 20,000, and in 2014, they were up 186,000. This pattern links closely to the appreciation of the dollar, which makes our manufactured exports less competitive in foreign markets. It’s also a politically timely observation, suggesting we’re going to need much more thoughtful and systemic policy than president-elect Trump’s recent Carrier plant intervention.

Wage growth was surprisingly flat over the month (down 0.1%), but that’s probably mostly give-back from last month’s 0.4% pop. You’ve really got to look at the year-over-year trend for average hourly wages, which shows a 2.5% gain over the past year, very much on a trend that’s up from about 2% a year ago. In fact, if we average this wage series over the past three months and compare to the average for the three months before that, it’s growing at a 2.9% annual rate.

Which brings me to the Fed point. Today’s report will be scrutinized for evidence as to the Federal Reserve’s plans to raise the benchmark interest rate they control when they meet later this month.

* * *

Yes, there is good evidence that the tightening job market has boosted workers’ bargaining clout, leading to faster wage growth. Given the long, dry, slack-driven period for wage growth, this is an unequivocal plus.

The risk, from the Fed’s perspective, is that as the labor market hits utilization constraints that come with full employment, faster wage growth will bleed into faster inflation, and that invokes part 2 of their mandate: 1) full employment at 2) stable prices.

But the [data] shows no such bleeding and ergo no need to suture the non-existent wound with a rate hike (along with no need for such stretched metaphors).

Finally, and I’ll have more to say about this later, let’s use a few indicators from today to look at the job market that president-elect Trump is inheriting compared to the one President Obama inherited. The table below shows various indicators from November 2008 compared to those from last month.

Obama_Trump

The difference is remarkable. Remember, presidents get credit and blame for many economic outcomes over which their policies have little impact, so a lot of what goes on in terms of the nation’s impression of their economic effectiveness, at least initially, is basically luck.

When it comes to the inherited trend, Obama basically was “catching a falling knife.” Payrolls fell a horrific 769,000 in the month he took office. The unemployment rate was about 7% on its way up to 10%.

Conversely, Trump is climbing aboard a very favorable trend, with steady job gains delivering low unemployment and increasing wage gains.

Like they say: If you can’t be good, be lucky.

Or as the old proverb says, “no good deed goes unpunished.”

13 responses to “November jobs report shows continued growth

  1. John Huppenthal

    Keep dreaming. If Trump reduces both corporate and personal income tax rates immediately, the economy could boom immediately and thus preserve majorities in both the House and the Senate.

    Just him coming into office has increased the value of the stock market by a trillion dollars. The stock market is expecting that tax package – it will boom some more when the package becomes a reality.

    Of course if he screws around on trade too much, everything could go into the toilet.

  2. If a 4.6% unemployment rate is so amazing, why aren’t people celebrating? It’s is because it doesn’t reflect the true unemployment rate. Hidden behind that figure are three factors that make the figure less heartening than it would be were it a true reflection of the unemployment rate.

    (1) Fewer adults are working. There are three reasons why: Baby boomers are retiring (good factor), more students are putting off entering the work force by staying in school and hiding (maybe good/maybe bad), and – most importantly – may people have simply stopped looking for work (bad). Instead of looking for work they are seeking disability, unemployment, welfare, charity, etc.

    (2) Long term unemployment is still very high.

    (3) Wage growth is anemic. This has been true since the Presidency of Bush, but it has not improved under Obama.

    Things may be better than they were a few years ago, but they are far from strong and no one with any sense of history would call it a thriving economy.

    • It’s also worth noting what the average hourly wages figure looks like as well as average hours worked.

      Another potential fly in the ointment concerns how many people are working 34 or 29 hours because of eligibility thresholds to receive benefits, splitting one full-time position into multiple ‘part-time’ positions.

      • Thanks for adding in, Edward. I hadn’t thought about that. Under employment IS a big problem as well.

        I always gently chide AzBM when he speaks so glowingly about the jobs report because he wants to credit Obama with the improvements. I will freely admit that the economy has improved during the time Obama has been President and I am happy that it has. However, I really don’t think Presidents are that responsible for what happens to the economy, good or bad. The economy is too big and complex for any one person – no matter how powerful they are – to have much effect on it. I understand why we do blame, or praise, Presidents…they are easy targets. But I just don’t think they have the ability to do much about it one way or the other.

        • For Sure Not Tom

          Presidents do affect the economy. Bush started two wars and cut taxes at the same time, doubling the debt, he inherited a budget surplus and immediately ran up a deficit.

          The wars are going to cost trillions, between the direct cost of the wars and the cost of veterans care for the next few decades.

          I’m pretty sure that impacts the economy.

          If you look at the economy after Obama’s stimulus (American Recovery and Reinvestment Act of 2009) you see the decline slowly turn around as the stimulus made it’s way into the pockets of Americans.

          Most people think the stimulus package wasn’t enough, but it was all that could be done given the sentiment in Washington.

          Presidents need congress to get these things done, but they are the Presidents agenda’s, without question.

          It may take years to see the impact, as in the case of income inequality and Reaganomics, but the impact is there and clearly visible.

          • Sen. John Kavanagh

            Improvement based upon debt via stimulus is not real growth. It is artificial growth that future generations will be hampered by.

          • AZ BlueMeanie

            Tax expenditures, i.e., tax cuts, are deficit spending, and never fully pay for themselves. The stimulus package added $787 billion in debt by cutting taxes (as well as the economic stabilizers of extending unemployment benefits, and funding job-creating public works projects). The bulk of the Bush tax cuts were also made “permanent” under the compromise between Obama and the GOP. http://www.epi.org/blog/bush-tax-cuts-stay/

            “The Bush tax cuts have been projected to remain a large component of deficits” in future years.

            In January 2001, FED Chairman Alan Greenspan testified that “The most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade.” https://www.federalreserve.gov/boarddocs/testimony/2001/20010125/default.htm

            Greenspan cautioned against paying off the debt too quickly:

            “But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically nonfederal) assets. At zero debt, the continuing unified budget surpluses currently projected imply a major accumulation of private assets by the federal government. This development should factor materially into the policies you and the Administration choose to pursue.”

            Greenspan concluded his remarks with this warning:

            “But let me end on a cautionary note. With today’s euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.”

            The Bush tax cuts followed. This was followed by putting two wars on the nation’s credit card and increased defense spending. Then came the Bush Great Recession, the worst economic catastrophe since the Great Depression. The federal debt more than doubled under Bush.

            In 2001, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system. In 2011, NPR obtained a government report through a Freedom of Information Act Request, titled “Life After Debt” (November 2000) http://media.npr.org/assets/img/2011/10/20/LifeAfterDebt.pdf

            NPR reported, http://www.npr.org/sections/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report

            Economists were projecting that the entire national debt could be paid off by 2012.

            This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

            “It was a huge issue … for not just the U.S. economy, but the global economy,” says Diane Lim Rogers, an economist in the Clinton administration.

            The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

            But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

            * * *

            If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?

            “I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it,” says Jason Seligman, the economist who wrote most of the report.

            “What would it look like to be in a United States without debt?” Seligman says. “What would life look like in those United States?”

            Yes, there were ways for the world to adjust. But certain things got really tricky.

            For example: What do you do with the money that comes out of people’s paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?

            In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

            “There’s such a thing as too much debt,” he says. “But also such a thing, perhaps, as too little.”

            (This was the point that Greenspan was making in his January 2001 testimony).

            The Tax Policy Center analysis of the Trump tax plan estimates his plan would reduce federal revenues by $6.2 trillion over the next decade, and would add about $7.2 trillion to the national debt over the next decade. http://www.taxpolicycenter.org/taxvox/latest-trump-tax-plan-adds-trillions-national-debt-clinton-plan-trims-deficits-taxing-wealthy

            Republicans only care about the debt when a Democrat is president. “Reagan proved that deficits don’t matter,” as Dick Cheney infamously said.

          • And the American Recovery and Reinvestment Act of 2009 didn’t add to the national debt and burden future generations with paying for what Obama spent? That is not stimulating the economy, that is just putting us deeper in debt. I respect a lot of what Obama did, but burdening our children with our debt is not one of those things.

          • For Sure Not Tom

            Obama’s stimulus added to the debt but saved the country from a full on Depression, which would have cost even more.

            Money well spent.

            Other examples of Presidents having major impact on the economy would be Nixon doing actual wage and price control’s, that commie, and GH Bush/Clinton pushing NAFTA.

            The truth is the economy does better under Democratic Presidents and conservatives won’t admit it because it would require them to admit that they don’t understand the economy at a fundamental level, and their economic philosophy benefits the wealthy at the expense of the nation.

          • “Obama’s stimulus added to the debt but saved the country from a full on Depression, which would have cost even more. / Money well spent.”

            Liberals like to claim Obama’s stimulus package saved us from a depression because he handed out the stimulus and we didn’t go into a depression. The truth is the two likely had nothing to do with each other. We weren’t the only national economy that was hurting and no other nation’s economy went into a depression, either. Economists were divided on the subject at the time between those who thought the stimulus helped and those who thought the stimulus would only prolong the recession.

            “Other examples of Presidents having major impact on the economy would be Nixon doing actual wage and price control’s, that commie, and GH Bush/Clinton pushing NAFTA.”

            You are correct on your example of wage and price controls under Nixon. It was of minimal impact and short duration, but it was solely Nixon. But I don’t think Bush and Clinton pushing NAFTA is really an example where Presidents impact it directly. They had to get Senate approval, and the Senate actually is one who affected the economy. Presidents nearly always have an agenda, but they are relatively helpless at doing anything themselves.

          • For Sure Not Tom

            Reagan tripled the debt, which grew the economy.

            Bush’s wars, while in theory “spending” and should help the economy, are actually a drag on the economy because unlike a road or bridge, we are not getting any value from them, they’re a burden without benefit.

            Trump’s recession will be huuuuuuuuggge.

          • “Trump’s recession will be huuuuuuuuggge.”

            That is your fondest wish, isn’t it?