All of the November job numbers on Friday were good, except for the number that usually gets the most attention.
The 210,000 jobs that US employers added last month were well below analysts’ expectations. But most of the other evidence in the report points to a tumultuous job market. An open question a few months ago is a busy labor market or a free one? – quickly calculates in favor of tight.
In particular, the unemployment rate fell to 4.2% from 4.6%, which is a significant jump in one month. The speed with which unemployment has progressed from a crisis to a favorable position is astounding. Unemployment in December last year was 6.7%. In one year, we experienced an improvement that took 3.5 years in the last economic cycle (March 2014 to September 2017).
Sometimes the fall in the unemployment rate is caused by a pernicious trend: people leave the workforce. In November, it was the other way around. The US household survey on which the data is based showed consistently positive signs. The number of people in the workforce increased by 1.1 million, while the number of adults not in the labor force – neither working nor looking for work – fell by 473,000.
Among people in the prime of their working years, between 25 and 54, the employment rate rose by as much as half a percent. In November, it stood at 78.8%, rapidly approaching the pre-pandemic level of 80.4%. It is easy to imagine that by the beginning of 2022, people in this age group will be employed at levels comparable to the pre-COVID world.
Even the disappointing job creation figure from a separate survey of employers has some positive aspects. First, this was accompanied by positive changes in employment growth rates for September and October, which totaled 82,000, which partially alleviates the severity. In recent months, unusually large changes have been made, mostly in positive directions, reflecting the challenges in collecting data in the face of the pandemic.
On the other hand, low job creation rates may also indicate a tight labor market. Employers may want to add more jobs, but they are limited by the number of workers they can find. This story certainly agrees with many enterprise surveys and anecdotes about labor shortages.
A rigid labor market in which there are few workers and employers have to compete to attract workers is usually the goal of economic policy. Wages tend to increase and workers are confident in their ability to find a new job. The new numbers are just the latest indication that American workers now live in this world. (Other evidence: The number of people volunteering to quit their jobs is at an all-time high.)
This is not to say that everything is perfect. The share of the adult population in the labor force remains well below the pre-pandemic level: 61.8% in November, up from 63.3% in February 2020. This largely reflects people’s early retirement decisions. And it remains unclear how many of these people could return to work as the economy and public health improve.
But from a political point of view, it increasingly looks like the economy is on the right track. Macroeconomic stabilization work has been largely completed. At its upcoming policy meeting, the Federal Reserve will seriously consider winding down its bond-buying program faster than planned, Chairman Jerome Powell said this week.
Despite the low job creation numbers, the overall employment report for November seems to support these plans. Fed officials would have liked to see a stronger recovery in economic activity, but the move was heading in the right direction at least in November. And ultimately, Fed policy will not determine whether, for example, a 62-year-old young man who quit his job during a pandemic decides to start working again.
If anything, the new numbers support the idea that the Fed has fallen out of place by pursuing a looser monetary policy than it should be at a time when the labor market is healthy enough and inflation is well above target.
Think about it: In the most recent economic cycle, the Fed began cutting bond purchases in December 2013, when the unemployment rate was 6.7% and inflation was approaching the Fed’s 2% target. This time it started when the unemployment rate was 4.2% and inflation was approaching 6% (inflation data for November has yet to be released).
Even if you think the Fed tightened monetary policy too quickly in 2013 – and the sluggish recovery of the 2010s bears witness to this – the contrast is striking. In this sense, the Fed’s more aggressive emission reduction plan would be an attempt to adjust its policy stance to the reality, without causing too much disruption to the markets or the economy.
If the Fed succeeds, the economy will continue to grow steadily and the labor market will continue to improve gradually. But it’s worth noting how quickly the improvement has already taken place. In February – just nine months ago – the Congressional Budget Office forecast the unemployment rate for the current quarter to be 5.3%. As a result, it ended up a whole percentage point below this level.
Ultimately, it was a quick recovery in the labor market and it looks like there is more room for development. Politicians have every reason to win and continue to adjust to this reality.