Why the November jobs report is better than it looks
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Everything about the November Friday employment numbers was good, except for the number that usually gets the most attention.
The 210,000 jobs created by American employers last month were well below analysts’ expectations. But most of the other evidence in the report points to a buzzing job market. A question opened a few months ago: is it a tight or loose labor market? – is quickly adjusted in favor of “tight”.
In particular, the unemployment rate fell to 4.2% from 4.6%, a remarkable change in just one month. The speed at which unemployment has gone from a severe crisis to a benign situation is astounding. Unemployment was 6.7% last December. In one year, we have seen an improvement that took three and a half years in the last business cycle (March 2014 to September 2017).
Sometimes a drop in the unemployment rate is due to a pernicious trend: people are leaving the workforce. The reverse was true in November. The U.S. household survey on which the data is based showed uniformly positive signs. The number of active people increased by 1.1 million while the number of inactive adults – neither working nor looking for work – decreased by 473,000.
Among those in their prime, those aged 25 to 54, the share of those employed increased by a whopping half a percentage point. It was 78.8% in November, quickly approaching its pre-pandemic level of 80.4%. It’s easy to imagine that by early 2022, people in this age group will be employed at rates commensurate with the world before Covid.
Even the disappointing job creation figure, derived from a separate employer survey, has positive sides. On the one hand, it was accompanied by positive revisions to employment growth figures in September and October, reaching a total of 82,000, which takes some of the sting away. Revisions have been unusually large, and mostly in a positive direction, in recent months, reflecting the challenges of collecting data in a pandemic economy.
On the other hand, weak job creation figures may also be evidence of a tight labor market. Employers may want to add more jobs, but are limited by the number of workers they can find. This story is certainly consistent with many business surveys and anecdotes about labor shortage issues.
A tight labor market – a market in which workers are scarce and employers have to compete to attract workers – is generally the goal of economic policy. Compensation tends to increase and workers are confident in their ability to find new jobs. The new numbers are just the latest proof that this is the world American workers live in right now. (Among other evidence: The rate of people voluntarily leaving their jobs is at record highs.)
This does not mean that everything is perfect. The share of adults in the labor force remains well below pre-pandemic levels – 61.8% in November, down from 63.3% in February 2020. This largely reflects people’s decisions to take early retirement. And it’s still unclear how many of these people could return to work as the economy and public health conditions improve.
But in terms of politics, it looks more and more like an economy on the right track. The work of macroeconomic stabilization appears to be more or less completed. At its next policy meeting, the Federal Reserve will seriously consider ending its bond buying program sooner than expected, President Jerome Powell said this week,
Despite weak job creation figures, the November Global Jobs Report appears to support these plans. Fed officials would like to see a sharper rebound in labor market participation, but the move was at least in the right direction in November. And ultimately, it’s not Fed policy that will decide whether, for example, a 62-year-old man who quit his job during the pandemic decides to go back to work.
On the contrary, the new figures support the idea that the Fed has found itself out of position, with monetary policy looser than it should be at a time when the labor market is rather healthy and with inflation. well above its objective.
Consider this: During the last business cycle, the Fed started cutting its bond purchases in December 2013, when the unemployment rate was 6.7% and inflation was below the 2% target. from the Fed. This time it started when the unemployment rate was 4.2% and inflation was around 6% (November inflation figures have yet to be released).
Even if you think the Fed was too quick to tighten monetary policy in 2013 – and the slow recovery of the 2010s is proof of that – the contrast is stark. In this sense, a more aggressive Fed reduction plan will be an effort to adjust its political position with the facts on the ground without disrupting the markets or the economy too much.
If the Fed is successful, the economy will continue to grow steadily and the labor market will continue to gradually improve. But it’s worth noting how rapid the improvement has already been. In February – just nine months ago – the Congressional Budget Office predicted the unemployment rate would be 5.3% in the current quarter. He ended up a percentage point below that level.
In the end, this was a rapid recovery in the labor market, and one that seems to have more leeway. Policymakers have every reason to win and continue to adapt to this reality.
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