Wolfers on today’s unemployment numbers: ‘yabba dabba doo!’
The U.S. economy added 292,000 jobs in December, and unemployment remained unchanged at 5.0 percent. December’s jobs report was nothing short of stellar.
By crikey, by jingo. And yabba dabba doo! Payrolls +292k Unemployment 5.0% And revisions add another 50k for past months.
— Justin Wolfers (@JustinWolfers) January 8, 2016
In fact, October and November’s strong jobs numbers were revised upwards 9,000 jobs and 41,000 jobs respectively. That’s 50,000 jobs not previously reported. And as a result, payroll growth increased to 2.7 million in the year 2015. While short of the record 3.1 million created in 2014, it seems clear that the economy is on the right track with regard to job creation, even if the recovery is slowing its pace from the summer, according to GDP data.
The drop in the unemployment rate for blacks was significant. Blacks, who typically suffer higher rates of unemployment than other racial groups, saw the black unemployment rate decline in December to 8.3 percent, down 1.1 percent point from November and down nearly 2 percent from last year.
I spoke to economist Valerie Wilson, director of the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy, about the decline in black unemployment. She cautioned that it’s hard to tell how much is real or sustainable employment growth in one month. As we always say here, never put too much stock into one month’s numbers.
But, Wilson noted that we’ve seen bigger decreases in black unemployment in recent years thanks to “the economy getting better as a whole.” When the unemployment rate decreases 1 percentage point nationally, it usually translates to about a 2 percentage point drop in black unemployment, she explained. “You get bigger changes in African American unemployment rate when the labor market gets tighter, because they are the ones left who are still looking for work.” Yet, the disparity between unemployment rates remain: The black unemployment rate is still almost double the white unemployment rate of 4.5 percent.
As they looked more closely at today’s data, however, economists noted that one number was a distinct downer. After a long overdue rise in the fall, average hourly earnings actually fell 1 cent last month.
Economists and policy analysts reacted:
Pretty good report but, you know, wages. pic.twitter.com/tFsXMt4sD0
— Nick Bunker (@nick_bunker) January 8, 2016
May the force be with stronger wage growth in 2016! pic.twitter.com/iDu8938Gqn
— Elise Gould (@eliselgould) January 8, 2016
Economist Elise Gould of the left-leaning Economic Policy Institute, who has repeatedly pointed out the lack of wage growth for months, explained:
A full employment economy means fewer people lined up for every job and employers have to offer higher wages to attract and retain workers.
— Elise Gould (@eliselgould) January 8, 2016
Or as Justin Wolfers told us in August: “Typically, when workers are hard to come by, employers pay higher wages to get them, which will in turn mean higher prices or inflation.” In other words, the Phillips curve — the historical inverse relationship between rates of unemployment and rates of inflation — isn’t holding true.
I asked Republican economist Douglas Holtz-Eakin about what’s going on with wages. He corrected me. “Nothing is going on with wages, that’s the problem. It’s the big economic puzzle at the time.”
So why are wages stagnant? Holtz-Eakin offered two possible explanations. One: productivity is too low. The dynamic we expect is that as the labor market tightens, employers hire workers, and when productivity increases, profits increase, and employers can then increase wages. But even though profits are at all-time highs, “to date,” he notes, “we have very little productivity growth.”
Another possibility is that “the labor market really isn’t that tight, and there are people on the side lines waiting to jump in.” A glance at this graph from Federal Reserve Bank of St. Louis shows labor participation rates are still rock-bottom low, even by recent historical standards.
So what do we make of the year in review? In terms of job growth, overall positive. Official unemployment declined .6 percent. The number of long-term unemployed fell by 687,000, and the number of involuntary part-time workers declined by 764,000. The Bureau of Labor Statistics’ U-6, a measure of labor underutilization, declined from 11. 1 percent in 2014 to 9.9 percent in 2015. Even our even more comprehensive Solman Scale U-7, which adds to the officially unemployed involuntary part-time workers and anyone who says they want a job, no matter how long it’s been since they last looked, declined from 13.43 percent to 12.03 percent over the year.
The negatives? The number of officially discouraged workers — those not currently looking for work because they believe there are no jobs for them — however, changed little at 663,000. The number of people who say they want a job, even though they haven’t looked in the past year, remains near six million, and weekly wages rose by only 2.2 percent. On the other hand, inflation didn’t rise at all, meaning that 2.2 percent was a real (not just nominal) raise in pay. So we end where we began, with Justin Wolfers: “At this point, we have very little idea how much of this nominal wage growth will pass through into higher prices versus higher real wages.”
But, Wolfers concludes, perhaps hyperbolically, “If this jobs report doesn’t make you happy, you hate America.”