The employment report was dubbed by many ‘solid’. At the same time, it is said that with the recovery being wageless, there is little risk of a premature, or even fast rise in interest rates by the Fed.
The stock market appears to have interpreted the report in that light.
Scott Sumner writes:
My initial read on the jobs number is that there’s not much for the stock market not to like:
- Strong jobs growth, plus unemployment falls to 5.9%
- Very large upward revisions of previous two months.
- More hours worked per week (when combined with jobs growth it implies lots more total hours worked.)
- Wages flat, and 2% year over year, vs. 2.2% forecasted. That means we are still in a cyclical recovery, still overcoming the sticky wage problem as rising NGDP combined with slow wage growth restores jobs.
Exit? There is nothing to “exit.” Money has been tight, not easy. Even with current policy we are undershooting the Fed’s own targets. Why would they want to tighten?
Oh yeah, money FEELS easy. And Fed officials don’t like that queasy feeling of “ultra easy money.” But the 317,000 people who just got jobs (including revisions in this total) don’t like the queasy feeling of being unemployed.
Update: I noticed that the labor force participation ratio fell to 62.7%, the lowest rate since February 1978. Folks, it’s not coming back. In less than a year the recession will completely end and we will get a normal unemployment rate (about 5%). Jobs will be available, and those people simply aren’t coming back. They are early boomer retirements (perhaps discouraged by the previous job market), disabled (perhaps partly discouraged by the jobs market in previous years) and young people staying in school longer, or choosing to work less (as is true in affluent towns like my own Newton, Massachusetts.) It pains me to say this but it’s pretty clear they aren’t coming back—the jobs market is good enough where the LFPR rate should not still be falling, if it really were nothing more than discouraged workers sitting there ready to plunge in again when things got a bit better.
Scott repeats “they aren´t coming back” three times! I could feel his “pain”. It reminded me of the antecedent: “Please don´t go”. But policy opened the “floodgates”. Can some (maybe many) be rescued?
The grand rationale is that structural issues weigh heavily. But is this true or merely a rationalization after the fact? After all, structural changes don´t “just happen”. They tend to be a slow-moving process.
To see if there´s really no chance of a “comeback”, I´ll focus on the behavior of the labor force participation rate (LFPR) over the last three cycles. The charts illustrate.
It seems that in the early 2000s the LFPR flattened out after having climbed for decades. But in mid-2008 it began a steep descent.
Would the fact that NGDP tanked at the same moment be just a coincidence? Wouldn´t people (actual and aspiring workers) who felt the ground open beneath their feet with nothing to hang on to become ‘discouraged’ and ‘frightened’, choosing ‘escape routes’ such as early retirement, disability or longer time in school?
That´s certainly possible, maybe even likely.
In that case, a ‘firmer ground’ could bring some (many?) of those workers back.
The chart highlights the big monetary mistake of mid-2008, but also shows that there´s still an opportunity to make up for those “sins”.
In other words, an alternative (less painful) world exists. But do those in charge see the possibilities?