Good Jobs Report Doesn’t Mean Fed Was Right

Timothy B. LeeTimothy 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:

Government Jobs After Recessions

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.”

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

6 thoughts on “Good Jobs Report Doesn’t Mean Fed Was Right

  1. I was looking on a jobs website that tracks how many people apply for a given position. This is one that is worth about $40,000 a year. It had fifty applicants.

    The economy has not recovered.

  2. It isn’t that there aren’t jobs avaiable, it’s that they don’t pay enough. For many people, it is better to stay home than to have to pay childcare, the cost of commuting, new clothes, etc.

    There is a real effort on the part of corperations, with the aid of the fed, to keep wages down.

    • The number of available jobs and the wage growth are pretty much the same thing. Wages rose in the late 1990s because employers (for the first time in decades) had to compete for employees. It is simply not the case that everyone who wants a job can have one. So real wage growth is less than 1% per year.

  3. Two things:

    As you already mentioned jobs are a lagging indicator. When some boss is looking to add a few more temps for a few more months, he is not pouring over GDP data and the Feds’ new inflation target. In a low wage, over leveraged, debt driven, consumer economy, rate hikes will cause recessions but the results of rate hikes are not instant.

    That last graph is very interesting and I wish that liberals would share it more often. While we need serious reforms and a move toward social democracy, we could have true full employment right now if Republicans had simply remained about as conservative as they were during the George W. Bush years.

    In the short run, their decision to tank the economy has paid off politically but they are shaping an entire generation in the shadow of debt, joblessness and low wages and in the long run that does not auger well for a pro business political party.

    • The problem is that because of the efforts of the anti-intellectual movement in this country, very few people trust any information like that graph unless they are already open to the message being conveyed.

    • And remember: it’s not just Bush. Government employment looked like that in every recession since WWII. Jonathan Chait was arguing 5 years ago that the current Republican Party wasn’t really any worse than the ones before — that we liberals always say this. But he gave up that argument (very unusual for him). And I think this graph is a good reason why. There really is something very different going on.

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