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Falling unemployment, stalled growth: What the latest jobs report means for the economy

June 2, 2017 at 6:35 PM EDT
According to the Labor Department, the unemployment rate dropped from 4.4 percent to 4.3 percent last month -- the lowest number in 16 years. At the same time, job growth seems to have stalled. Diane Swonk of Diane Swonk Economics joins Judy Woodruff to make some sense of the numbers.
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JUDY WOODRUFF: The climate decision raises question about the economy, and so does today’s jobs report.

In it, the unemployment rate dropped to its lowest point in 16 years, causing some economists to raise the prospect of what they call full employment. But job growth seems to have slowed considerably. With the latest revisions, the economy is generating an average, we’re told, of about 120,000 net new jobs each month.

To get some insight into all of this, we’re joined from Chicago by Diane Swonk, an economist who runs her own firm.

Diane Swonk, welcome back to the program.

So, overall, what do you make of these jobs numbers for the month of May?

DIANE SWONK, Diane Swonk Economics: Well, certainly, they were a disappointment.

That said, we don’t need to generate as many jobs as we once did to keep the unemployment rate steady or even fall. Of course, the unemployment rate itself fell for the wrong reasons in the month of May. And that is that the participation rate fell yet again.

We’re seeing more people retire out of the labor force and men in particular didn’t participate as much in the month of May. That is something we like to see moving in reverse at this stage of the game.

JUDY WOODRUFF: When you say, Diane, that the country, you said we don’t need to generate as many jobs as we once did, what do you mean?

DIANE SWONK: Well, basically, the labor force isn’t growing very rapidly anymore. And even though the economy is very subdued in its growth at 2 percent, you just don’t need to create very many jobs to absorb those workers coming into the labor force and keep the unemployment rate going down.

We have actually seen job growth slow and the unemployment rate fall. And that is because we’re near what we call full employment. That sounds good in terms. What it really means in economist terms and for the Federal Reserve is nearly all of those people who are employable or are employed or who are looking for a job are now sort of either between jobs because they wanted to be between jobs or are just coming into the labor force, but it’s not a lot of extra slack in the U.S. economy.

That said, it doesn’t mean all those people who want a job in the U.S. economy or have dropped out and are not looking can actually get a job.

JUDY WOODRUFF: Diane, you were telling us earlier today that the focus on jobs obscures the need to look at raising skill levels. Talk about that.

DIANE SWONK: Exactly.

One of — there are two reasons why we saw the wage gains slow in the month of May from a year ago. It is only up at a 2.5 percent rate. This is something we like to see going in the other direction. If you are near full employment, wages should be accelerating.

One reason is because millennials are replacing older baby boomers and they’re paid less. That is not a bad reason for wage growth slowing. The other reason is that we are seeing many employers out there dip further into lower-skilled workers, but instead of paying them more, they are actually investing in training, because they don’t have the skills necessary to do the jobs they have or they are leaving job positions open.

The shortages in construction are particularly acute and manufacturing, which actually contracted. We still have over 300,000 jobs that aren’t filled just because people don’t have the right skills. So we would do much better to enhance the skills of those out there who are on the sidelines and not participating right now to bring them back in, than just give them tax cuts to cut low wages.

JUDY WOODRUFF: And very quickly, finally, Diane, we took note yesterday when President Trumped talked about the country having created, I think, he said a million jobs since the election last November. Does that reflect what’s been going on?

DIANE SWONK: It is a bit of a stretch. We have created 800,000 jobs since the beginning of the year. If you want to do it since he’s been president, it’s about 600,000 jobs. So, depending on how he wants to count, I think it is a little early for him to take credit one way or the other, and might be careful what he wants to take credit for in terms of job gains.

I think it is going to get better going forward, but the bottom line is, that is not really the way to count it.

JUDY WOODRUFF: Diane Swonk joining us from Chicago, thanks very much.

DIANE SWONK: Thank you.

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