Well, that stunk.
The latest employment report — typically the most timely and accurate measure of the state of the business cycle — suggests that the economy is slowing. Employers added only 38,000 jobs in May, and revisions suggest that they created 59,000 fewer jobs over the previous two months than initial estimates suggested.
It is worth bearing in mind that this is noisy data, and the economy rarely zigs or zags as often or as dramatically as any initial set of numbers suggest. A better gauge of the underlying rate of jobs growth is to take an average over the past three months. By that measure, the labor market is creating around 116,000 jobs per month. This is a notable slowdown from jobs growth in the 150,000-250,000 range over most of the past five years. But it’s a slowdown and not a sudden stop.
There are actually two surveys of employment conducted each month, the headline measure that comes from a survey of firms, and an alternative and less reliable measure from a smaller survey of households. Both were weak. The household survey registered employment growth of only 28,000 in May.
The household survey is also used to measure the unemployment rate. In an odd twist, it shows that the unemployment rate fell to 4.7 percent in May, from 5 percent in April. But this is not the good news it seems, because it almost entirely reflects a decline in the number of people reporting that they were looking for work. The decline reversed the hopeful signs over recent months that labor force participation may be recovering.
It is likely that this month’s report overstates the extent of the slowdown. A strike at Verizon cut payrolls by about 35,000. A mild winter led to higher employment levels in the first part of the year, which leads to lower growth as employment has since reverted to seasonal norms. Then again, Jonathan Wright, a professor of economics at Johns Hopkins, has published an improved algorithm for adjusting for seasonal fluctuations, and it suggeststhis report actually overstated jobs growth by about 40,000.
If all of these adjustments suggest that it’s hard to know what the underlying pace of jobs growth is, then you are correct. These numbers are imprecise estimates, and they come with a margin of error of plus or minus 100,000.
No matter what the true numbers are, the jobs report should be interpreted in the context of other indicators that do not show as speedy a slowdown. Putting it all together, the outlook is less rosy, but by no means terrible.
The economy still appears to be reducing unemployment.
There was a time when the working-age population was growing so rapidly that if the underlying rate of monthly jobs growth slipped to 100,000, that would not only be disappointing, but it would also point to rising unemployment. But that’s not today’s reality.
As the number of baby boomers entering retirement continues to rise, the number of jobs the economy needs to create to keep pace with population growth has fallen sharply. A reasonable estimate is that the economy needs to produce somewhere between 70,000 and 90,000 jobs per month to keep the unemployment rate stable. (The Council of Economic Advisers estimates 77,000.) Even after today’s report, it seems likely the underlying pace of growth remains above this.
That is, the economy is still growing faster than its long-run potential rate of growth, and the recovery is continuing.
It’s not that things are getting worse, it’s that they’re getting better more slowly.
Moreover, unemployment is now at historically low levels. The last time the economy registered an unemployment rate this low was November 2007, on the eve of the Great Recession.
There remains a vibrant debate as to whether the labor market has fully recovered from those dark days, or whether today’s low unemployment rate overstates its health. Millions of people are still working part-time but looking for full-time work, and millions more are no longer actively searching for work, and so do not meet the technical definition of unemployment.
Average wage growth of only 2.5 percent over the past year suggests there remains a lot of potential for the labor market to improve without sparking inflation.
But at some point, slower employment growth is an inevitability.
Forecasters have long suggested that as the economy approaches full employment, jobs growth must slow. By this reckoning, the economy cannot continue to create jobs more rapidly than the labor force is growing without the emergence of bottlenecks. If this is right, perhaps we should get used to seeing employment growth closer to 100,000 per month.
The disappointing news, then, is that the day of reckoning may be a step closer than we had thought.
News: THE NEW YORK TIMES
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