Timothy B Lee and Soo Oh are mostly right, We Just Got Some Really Great News About the Economy. I wouldn’t say “great news,” but the new jobs report is quite good news and the economic recovery keeps on keeping on. We added 292,000 jobs last month. And the estimates from the two previous months were revised up by a total of 50,000 jobs. So that means that the economy created 2.7 million jobs last year. That’s very good, but still less than 2014, when 3.1 million jobs were created.
It’s not all good news, however. The employment to population ratio (for prime age workers 25-54 years old) is stuck at 77.4%. To give you an idea of what this means, it was 80.0% in January 2008. It was 81.9% in April 2000. This is not a sign that people have gotten lazy. And given it only deals with people at least 25, it mostly filters out people going to school. And given it only deals with people under 55, it mostly filters out people who are retired. So our low rate (which has increased substantially from its nadir of 74.8% in December 2009), simply indicates that there are not enough jobs around.
Let’s do a rough calculation. The employment to population ratio for prime age workers is roughly 2.5% below where it was before the financial crisis. That represents about 3.5 million workers. And I continue to believe that full employment is not 5% (Much less 5.5% or 6%!) but rather 4%. So that represents another 1.5 million workers, for a total of 5 million workers. So if we continue to gain jobs at a rate of 292,000 per month, we will be back at full employment in a year and a half. Of course, no one expects the economy to continue to grow at this rate. It is more reasonable (but hardly assured) that we will see 200,000 jobs per month, which is over two years. For people who have been waiting for seven years, that’s still a long time.
This brings us to the Federal Reserve. This jobs report does not exonerate the recent rate hike. For one thing, the economy hasn’t had time to adjust to it. But the other thing is that the the economy doesn’t have to tank for the Fed to be hurting it. As I’ve just discussed, there are roughly five million people who would like jobs who can’t find one. Wage growth this last year was 2.5% — just above the core inflation rate for the year of 1.8%.
This brings up another question: when was the core inflation last substantially above the Fed’s 2% target? You have to go back 20 years to get even up to 3% for the year! The average core inflation over the last 15 years (1.95%) has been less than the Fed’s target, yet it is terrified that it might might go over the target. It is clear that despite its legal mandate, the Fed has no target; it has a ceiling. It will work to stop low inflation, but it only freaks out about inflation dipping above 2%.
I really hope that the economy will really start to take off now and that this jobs report is just the start. But I seriously doubt that. The most likely case is that it will continue to improve at the mediocre 200,000 jobs per month. At the same time, the Republicans will do everything they can to stall the economy. I mean, look at the following graph. This is what the Republicans have done to keep Americans out of work:
That’s a two million job gap right there. And given a 50% multiplier effect (which is probably low), if the Republicans had allowed the government to grow as it always did after past recessions, we would more or less be at full employment. If that were the case, the Fed could do almost anything it liked and I wouldn’t complain. But despite this jobs report, we are still in the middle of a very fragile recovery, and the Federal Reserve should be doing everything it can to help — and not just please bankers who want larger returns on their “investments.”