October jobs report shows steady growth

Remember where we were eight years ago today? The U.S. economy was in free fall, bleeding over 600,000 jobs a month, and the world’s financial system was on the verge of collapse. People were legitimately scared.

Thank God Americans elected Barack Obama. Fact Check.org summarizes, Obama’s Numbers October 2016 Update:

Since President Barack Obama first took office:

• The economy has added nearly 10.7 million jobs.
• Median household income has gone up $1,140, or 2 percent.
• The buying power of the average worker’s weekly paycheck is up 4.2 percent.
• Median sales prices of existing single-family homes are up 23 percent.
• The unemployment rate has dropped well below the historical norm; job openings are at a 15-year high.
• Corporate profits and stock prices have both soared to record highs.
• The number of people lacking health insurance has gone down by 16.5 million.

Steve Benen has the October jobs report, the last before election day. U.S. job growth remains steady in final pre-election report:

The Bureau of Labor Statistics reported this morning that the U.S. economy added 161,000 jobs in October, which is roughly in line with projections. The unemployment rate inched lower, dropping from 5% to 4.9%. It’s the 13th consecutive month the rate has been at 5% or lower.

As for the revisions: August’s job totals were revised up, from 167,000 to 176,000, while September’s were also revised up, from 156,000 to 191,000. Combined, that’s a net gain of 44,000.

Over the last 12 months, the overall economy has created 2.35 million new jobs, which is a pretty healthy number. And with two months remaining in 2016, the U.S. remains on track to create over 2.1 million new jobs this calendar year. What’s more, October was the 73rd consecutive month of positive job growth, which is the longest on record.

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

Jared Berstein writes Election Eve Jobs Report: The labor market in Oct 2016:

Payrolls rose 161,000 last month, in yet another in a series of solid reports on conditions in the US job market. Revisions to prior months added 44,000 to job counts, bringing the near-term (3-month average) trend in job growth to a robust 176,000 per month.

The unemployment rate ticked down slightly, but this was due to a slight tick down in the labor force, which remains stuck below 63%, down from 66% before the recession. While most of this decline is attributable to retirees aging out of the workforce, some portion, as discussed below, reflects the fact that, while the job market is clearly strengthening, it is not yet at full employment.

Average hourly wages grew 2.8% over the past year, their fastest growth pace since June 2009, suggesting that the tightening labor market is giving workers more bargaining clout. Since inflation has been running at around 1.5%, the real buying power of an average hour of work is up by more than 1% over a year ago. As I show below, that’s an improvement in the pace of real wage growth compared to earlier in this expansion. Faster real wage growth in recent months is a function of two factors: a) the tightening job market pressuring employers to bid up wage offers, and b) slower price growth that erodes less of the buying power of the nominal wage.

There is, however, an important caveat to the current wage story. While the pay of most workers appears to have gotten a boost from the tighter job market, it may be that higher-paid workers are gaining faster. The growth in the hourly pay of blue-collar workers and non-managers has been stuck at around 2.5% over the past year. That’s still a full point above where it was a few years ago, but this difference–faster growth at the average compared to that of lower-paid workers–is suggestive of the earnings inequality pattern that’s been embedded in our labor market for decades.

There’s a hint in today’s report of one factor that could be in play in these differing wage dynamics. Net employment growth was exclusively in services last month, as goods-producing sectors added zero jobs. Factory jobs have declined (slightly) in each of the last three months, and they’re down 62,000 so far this year. Construction employment has also been weak. These sectoral pressures may be putting downward pressure on wage growth for mid-wage workers.

In order to boost the signal-to-noise ratio of the monthly job gains, the smoother bar chart below shows 3-, 6-, and 12-month averages of monthly payroll changes. Over the past six months, average monthly gains are up around 179,000, a slight deceleration over the 12-month trend. This pattern is what we’d expect as the labor market expansion ages, though there are still underutilized labor resources, i.e., non-workers who could come into the labor market along with employed workers who could work more hours.

Source: BLS

This latter group looms large in the underemployment rate—what the BLS calls u-6—which is one of a few indicators which clearly shows we’re not yet at full employment (see figure below). This rate provides a more comprehensive look at the extent of slack remaining in the job market, as it includes just under 6 million involuntary part-timers (IPTs) who’d prefer full-time jobs but can’t find them. While it has fallen sharply off of its recessionary peak, when there were over 9 million IPTs, it has been stubbornly stuck in the mid-9’s (9.5% last month) for most of this year, about one percentage point above its rate at full employment (by my calculations).

Source: BLS

Other still-weak measures include the labor force participation rate, though this one is harder to read because, as noted above, demographic factors—our aging workforce—put downward pressure on this measure. A cleaner measure is the employment rate (employment-to-population ratio) of prime-age (25-54 year-old) workers. This metric fell sharply in the recession and has slowly been climbing back, thus far gaining back 3.4 percentage points of its 5.5 point loss, peak-to-trough. (As discussed here, for prime-age men, these cyclical movements are occurring around a long-term, negative trend.)

Of course, as this is the last jobs report before next week’s general election, its results will be scrutinized through that lens, despite the fact that the vast majority of voters’ preferences are already locked down. Still, I thought it would be interesting to compare job market conditions on the eve of this election to that of a few past Octobers in presidential election years.

The table below shows unemployment and underemployment (u-6) rates, along with average monthly payroll gains (Jan-Oct) and real yearly wage growth. By these few, top-line measures, the table shows labor market conditions to be quite solid compared to similar periods in past election cycles, with tighter job markets, and importantly, faster real wage growth (though the inequality caveat from above is germane here). To be clear, election cycles are not synonymous with economic cycles, and the latter dominate in determining these trends.

Source: BLS

That said, on the eve of the election, the job market continues to improve, and reliably so–monthly job gains have been steady and strong enough to tighten up employment conditions, which are in turn boosting wage growth (I hasten to add non-inflationary wage growth, Janet and co.!).

Clear pockets of concern remain, including slack as measured by underemployment and prime-age employment rates, and perhaps some evidence of wage inequality, as wage gains may be more significant for higher- as compared to lower-wage workers.

But there’s absolutely no case at all for the Trump message of a terrible US economy, especially among the metrics that people care most about: jobs and paychecks.

Neil Irwin at the New York Times‘ The Upshot writes, These Jobs Numbers Show an Economy That Is Basically Healthy:

The United States economy is basically healthy.

That is the simplest, most important thing to take away from new jobs numbers released Friday morning, four days before the presidential election. These numbers affirm that Americans were probably right to focus on other things during this election. The United States still has plenty of problems and economic challenges. But they are more of the long-building variety than the get-us-out-of-this-slump variety.

The unemployment rate edged down to 4.9 percent in October, continuing a remarkably stable run (it has been either 4.9 percent or 5 percent for 12 of the last 13 months). Employers added 161,000 jobs, broadly consistent with the pattern over the last year; job creation estimates for September were revised upward.

The biggest and most pleasant surprise in these numbers is evidence that workers’ wages are rising faster than they have through seven years of expansion. Average hourly earnings for private-sector workers rose 0.4 percent, and are up 2.8 percent over the last year. It suggests that the many anecdotal reports that employers were needing to increase pay to get workers are more than just anecdotes.

* * *

Where does that leave a proper understanding of the state of the United States economy on the eve of an election?

The current economic expansion may be the most maligned in history. Among the complaints: It has been too weak, too slow, too uneven; it has been accompanied by people dropping out of the labor force; it hasn’t brought meaningful income gains; it is driven entirely by the sugar high of monetary stimulus from the Federal Reserve.

And these statements aren’t wrong! It really has been painfully slow, particularly given the depth of the 2008-2009 recession from which the United States has been recovering these last seven years.

But it’s worth pausing to look at what has been achieved. Some 95.1 percent of Americans who tell survey-takers that they want a job are working. And they are finally starting to get the bigger paychecks they have long hungered for. It took a long time getting here, but the problems in the economy don’t have much to do with recessions and recoveries anymore. They’re about deeper questions of how best to improve the nation’s long-term economic potential.

The next president will take office with a sound economy. The decision voters face is over which candidate’s long-term vision they find most compelling for building upon that.

In 2008, the U.S. was entering the worst economic catastrophe since the Great Depression. Eight years later,  “The United States economy is basically healthy.”

Thanks, Obama!