The State of the U.S. Labor Market

looking-for-job-sign

By Evan Lefkowitz ’16

Released on Friday, the U.S. Labor Department October jobs report shed light upon a strengthening U.S. labor market. The U.S. economy saw a 214,000 increase in jobs during October. The main driver of this increase was private services sector jobs, including 52,000 jobs in the leisure sector and 37,000 in business services. Though this figure missed economist’s estimates of 240,000, it still represents solid sustained growth. The slight disappointment was offset by a 31,000 person adjustment increase in last month’s data, which reveals two promising trends in job growth. First, the U.S. employers have added an average of 224,000 jobs over the past three months, in line with the average 222,000 average increase in the past 12 months. More importantly, the 31,000 revision to last month’s job report means that the economy has added more than 200,000 jobs for nine straight months, a feat that hasn’t occurred in the United States since the mid 1990’s. It represents a sustained rate of growth in jobs that hasn’t been seen since before the recession.

The unemployment rate also sent positive signs about continued labor market acceleration. In October, the unemployment rate fell from 5.9% to 5.8%, capping off a cumulative 0.8% drop in the past 12 months. 5.8% represents the lowest unemployment rate since mid 2008. The labor-force participation rate, which measures the number of workers employed or looking for a job, also jumped to 62.8% in October. Per the Wall Street Journal, the declining unemployment rate is reflected in the fact that more jobless citizens chose to enter the workforce rather than exit. Furthermore, household job statistics indicated that 24% of unemployed workers found jobs in October, exceeding the 22.8% from September and representing the highest figure since before the recession in 2008. The underemployment rate (U-6), which the Bureau of Labor Statistics defines as a broader measure of unemployment that includes “persons marginally attached to the labor force (including discouraged workers no longer searching for jobs) and persons employed part time for economic reasons, fell to 11.5%, down from 13.7% twelve months ago. Overall, according to Bloomberg, 59.2% of the U.S. population is now employed, the highest it’s been since the summer of 2009.

Despite these rosy numbers, the one blotch on the jobs report that has persisted throughout the recession is the stagnation of wages. The average hourly earnings of private sector employee only went up three cents and increased 2% year over year. Reuters reports that this slow growth is slightly impacted by the type of jobs workers are taking. About 20% of jobs taken in October were in the food sector. The Wall Street Journal suggests that this slow moving rate could also be attributed to a sizeable amount of part-time workers in the current workforce compared to before the recession. Part-time workers have a lower growth rate in wages compared to the fully employed. Economists argue that full employment can’t be reached until an increase in wages supplements an unemployment rate between 5.2% and 5.5%.

So what does this mean for the United States economy? The unemployment rate is a key factor in the Fed’s decision to increase interest rates. Janet Yellen has emphasized the fact that an unemployment rate between 5.2% and 5.5% is necessary for an increase in interest rates. Based on the current rate of decline in unemployment, it would seem that it could pass the 5.5% threshold in the near future. However, the lack of growth in wages leads experts to believe that the Fed will not change its mid 2015 timeline for raising interest rates. If the unemployment rate continues to fall, we will see if it pressures businesses to raise wages. If this were to occur, we could possibly see a scenario in which the Fed considers raising wages earlier than expected.

Sources:

http://blogs.wsj.com/briefly/2014/11/07/october-jobs-report-the-numbers/

http://blogs.wsj.com/briefly/2014/11/07/5-takeaways-from-the-october-jobs-report/

http://www.ft.com/intl/cms/s/0/fd4b310a-6684-11e4-9c0c-00144feabdc0.html#axzz3IQ3JyWAX

http://ftalphaville.ft.com/2014/11/07/2036092/october-payrolls-214k-and-jobless-rate-at-5-8/

http://www.bloomberg.com/news/2014-11-07/most-americans-streaming-back-into-workforce-are-finding-jobs.html

http://www.reuters.com/article/2014/11/07/us-usa-economy-idUSKBN0IR0DV20141107

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