Unemployment rate drops to 4.6 percent — for the wrong reasons

In November, the unemployment rate fell from 4.9 percent to 4.6 percent — but for the wrong reasons.

Huh?

Let me explain. While the U.S. economy added 178,000 jobs in November, that didn’t offset the 226,000 people leaving the labor force. The labor force is made up of those looking for work (the unemployed) and the employed. And when people give up looking for work — often because they don’t think there are any jobs available for them — or retire, the labor force decreases. As a result, the unemployment rate drops.

“We still see a lot of discouraged workers,” said Aparna Mathur, an economist at the conservative American Enterprise Institute. “A lot of workers probably have part-time jobs that they are not happy with, and those are not turning into full-time jobs, so they are dropping out [of the labor force].”

While a drop in the unemployment rate is often a positive sign, it appears to be largely due to a fall in labor force participation.

— Elise Gould (@eliselgould) December 2, 2016

Wages were a sore spot as well. Average hourly earnings declined 3 cents after rising 8 cents in October. “Wages were down, but then again, if you average them over the last two or three months, they’re not too bad,” said Harry Holzer, an economist at the Russell Sage Foundation and author of “Where Are All the Good Jobs Going?”

And if we look at the trend over the year, we see that wages have risen by 2.5 percent. As we always say here, never trust one month’s numbers.

The more striking part of the payrolls report is that hourly earnings fell slightly this month, and are up only 2.5% over the year.

— Justin Wolfers (@JustinWolfers) December 2, 2016

The jobs report isn’t all bad. “On the payroll side, 178,000 jobs is pretty good. It’s in line with what we have seen in the last several months,” Holzer said.

If we continue to add jobs at this rate, we could see full employment as early as next year.

Overall, “it’s a solid jobs report, although I think there are some mixed signals,” Mahur said.

This jobs report is “somewhat mixed, not a dramatic departure from the pattern we’ve seen over the last several months,” Holzer said.

In other words, don’t fret. The economy will keep chugging along. After all, this is the 74th consecutive month of job growth.

This economic recovery and then expansion hasn't been spectacular, but by jingo, it's been relentless. Job growth month after month.

— Justin Wolfers (@JustinWolfers) December 2, 2016

“In the short term, we continue to recover from the Great Recession,” Holzer said. “But we still have these very serious, longer-term challenges for less educated workers — stagnant wages, declining labor force activity etc.”

This is where our attention needs to go, he said, although he cautions against just blaming trade and points to a combination of technology and globalization as two things that have hurt all less-educated workers, not just the white working class.

Mathur, too, is optimistic. She is hopeful that “the corporate tax rate cuts that the new administration is likely to bring in … will lead to some positive news for job creation.”