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Jobs Data: Probably Better Than They Seem — So Stick with the Accelerated Tapering

(REUTERS/Mike Blake )

Well, the jobs numbers were a little confusing.

The Financial Times explains, wisely deploying the word “complex”:

Employers . . . added just 210,000 jobs for the month, a steep drop-off from the 546,000 positions created in October and well below economists’ forecasts of 550,000. Since the start of the year, monthly gains have averaged 555,000.

Doesn’t look great, but:

Despite the slower-than-expected pick-up in November, the unemployment rate fell significantly, dipping 0.4 percentage points to 4.2 per cent. Less than six months ago, it hovered closer to 6 per cent.

Well, good.

The New York Times’ Neil Irwin offers at least a partial explanation for the slowdown in job creation:

Soft job creation numbers may also be evidence of a tight labor market. Employers may want to add jobs in larger numbers, but are constrained by the number of workers they’re able to find. That story is certainly consistent with many business surveys and anecdotes about labor shortage issues.

There’s probably something to that.

Back to the Financial Times:

“With this report, we get more evidence that the economy has re-accelerated from a bit of a slowdown in the third quarter,” said Ellen Gaske, an economist at PGIM Fixed Income.

She pointed to the discrepancy in the two surveys that comprise the jobs report, with one measuring households and the other employers. The “establishment” survey suggested a sharp slowdown in hiring, while the “household” survey showed a gain of 1.1m.

Are statistics in the age of COVID all that they might be? For what it’s worth, the data released today included decent upwards revisions to the number of job gains for both September and October.

It’s an iron rule that a single day’s data releases are not too determinative of anything, but a couple of takeaways seem fair enough.

The first is that — so far as employment is concerned — we are edging back toward the pre-COVID normal (I’ll make no comment about inflation).

The Financial Times:

The so-called labour force participation rate, which has stagnated since June 2020, ticked up to 61.8 per cent for November from 61.6 per cent in October, although is still about 1.5 percentage points lower than the pre-pandemic threshold.

Some of that decline will reflect the supposed “Great Retirement,” although I wonder how durable that phenomenon will really prove, particularly if inflation — no friend to those on fixed incomes — continues to bite.

The Financial Times:

For “prime age” workers aged between 24 and 54, the employment-to-population ratio, which tracks the percentage of Americans in the age bracket who currently have jobs, improved substantially in November, rising to 78.8 per cent, from 78.3 per cent the previous month. That is the highest level since early 2020.

However, there are still 3.9 million more Americans out of work than there were before the pandemic.

So, there is still quite some way to go, and that some way may be extended because of the Omicron variant, or, perhaps more likely, because of government overreaction to Omicron. This new variant must, of course, be taken seriously. However, a panic-stricken overreaction is not taking it seriously, but an evasion of the sort of thinking that is needed in the face of a problem of this nature. One way or another, we are going to have to “live with” this virus. That’s not a takeaway from these numbers, but it is a takeaway unchanged by them. It’s worth pointing out that retail employment actually declined (albeit by a small number, some 20,000), and leisure and hospitality jobs were flat. These are sectors that will be hit very hard in the event of an Omicron panic.

Meanwhile, the FT notes that “average hourly earnings rose another 0.3 percent month over month in November, the slowest monthly pace since March, bringing the annual pace of wage growth to 4.8 per cent.” Comparing these numbers with the data since March 2020 is tricky, as much of those were distorted by changes in the composition of the workforce. Thus the spike in the spring of 2020 reflected the fact that lower-paid workers suffered a disproportionate percentage of the jobs lost when the pandemic struck. Equally, the decline in wage growth seen briefly earlier this year was, at least partially, a reflection of the return of more of the lower-paid into the workforce.

It is thus more useful to compare wage growth with data from before the pandemic, when annual growth rates were around 3 percent. The comparison suggests some wage pressure now, but perhaps not an inordinate amount. In fact, this was the lowest month-on-month figure for wage growth since March, and was indeed slightly below expectations. That might well be in line with the uptick in people joining the workforce: Even if they are still not the whole way there (see Irwin’s comment about possible difficulties in filling jobs), are employers now beginning to find wage levels that will secure them the workers they need? (The ending of various federal pandemic-relief programs will have almost certainly played its part in this too, as will the inevitable erosion of any savings accumulated during the pandemic.)

The Times’ Irwin sees the overall picture in rosy terms:

The speed with which unemployment has gone from a grave crisis to a benign situation is astounding. Unemployment was 6.7 percent last December. In one year, we’ve experienced an improvement that took three and a half years in the last economic cycle (March 2014 to September 2017).

There’s no doubt that we have seen a remarkable turnaround, but we should forget neither the extraordinary amounts of money thrown at the problem, nor the fact that this crisis was brought about by, so to speak, a bolt from the blue (and almost certainly exacerbated by some of the steps taken by governments to deal with it). The latter type of crisis is very different from one that was home-grown and created by flaws within the financial system. The cure for that was always likely to take time, “financial” crises tend to.

Edmund Andrews, writing for the Stanford School of Business in 2019:

new study of financial crises going back to 1870, coauthored by Arvind Krishnamurthy at Stanford Graduate School of Business, finds that the recession of 2007–09 played out pretty much as expected . . .

If anything, Krishnamurthy says, the recovery that began in 2009 was quicker than the historical patterns would have suggested.

And my last takeaway from today’s data (so far) is that they are no reason to reverse the acceleration of the taper now advocated by the Fed.

The NYT’s Irwin:

[A] more aggressive tapering plan from the Fed will be an effort to adjust its policy stance with the facts on the ground without causing too much disruption to markets or the economy.

If the Fed succeeds, the economy will keep growing steadily and the labor market will continue its gradual improvement. But it’s worth noting just how rapid the improvement has already been. In February — a mere nine months ago — the Congressional Budget Office was forecasting the unemployment rate would be 5.3 percent in the current quarter. It has ended up a full percentage point below that level.

Ultimately, this has been a speedy labor market recovery, and one that appears to have more room to run. Policymakers have every reason to take the win and continue adjusting to that reality.


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