The jobs report
Friday's jobs report for November was a mixed bag. The unemployment rate, which is based on the household survey, dipped below the psychologically important 6 percent level, falling to 5.9 percent. But nonfarm employment, which is based on a survey of business establishments, rose by a mere 57,000 jobs.
Labor-market trends are clearly moving in the right direction. The unemployment rate, for example, has fallen a half-percentage point since reaching its cyclical peak of 6.4 percent in June. In addition, after shedding more than 500,000 jobs during the February-July period, when employment fell each month, nonfarm payrolls have grown each month.
Still, the advances at this stage in the business cycle are not nearly as large as one would expect from such a rapidly growing economy. Since July, for example, only 328,000 net new jobs have been created. At such a slow pace, it would take another two-and-a-half years before the economy replaced the 2.7 million jobs that were lost between the February 2001 employment peak and the jobs nadir reached in July. Moreover, revised data reveal that average monthly employment during the third quarter was 82,000 jobs below the second quarter's monthly employment average, despite the fact that the economy surged ahead during the third quarter at an 8.2 percent annual rate.
Over the long term, payrolls must increase by about 150,000 jobs per month to prevent the unemployment rate from rising. Monthly job growth needs to be in the 200,000 to 300,000 range: to fully replace the jobs lost since early 2001 within a reasonable period of time; to sustain consumption levels commensurate with an economy expanding at a 4 percent to 5 percent annual rate; and to provide additional incentives for businesses to invest.
It has been several months since the administration established as its goal nonfarm job growth of 200,000 per month through the end of next year. Thus, it is in this context that November's 57,000 increase in nonfarm employment was such a disappointment.
Contrary to what passes for contemporary wisdom, nonfarm employment growth has rarely been a lagging economic indicator. With the recent exception of the recovery from the 1990-91 recession, employment growth has coincided with economic growth, as it clearly did following the 1973-75 and 1981-82 recessions. Thus, the notion of a jobless recovery is a relatively recent phenomenon. Even if the revolution in productivity helps to explain why employment growth has been so tepid during the current cycle, it by no means makes it any more bearable. Monthly payroll expansions above 250,000 cannot arrive soon enough.
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