Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.
Today's Economist
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On the other hand, the labor force really tanked — the participation rate fell 0.4 of a percentage point — a large monthly drop on top of an already depressed trend. So:
- What’s up with job growth? Is it stronger than we thought?
- And if so, doesn’t that seem inconsistent with a tanking labor force?
- Why didn’t the government shutdown show up in these data?
On the first point, the new data suggest that job growth is a bit stronger than we thought in the near term, though there’s no big difference in the trend. We’re still adding jobs at a clip that will bring the jobless rate down only slowly, though here the labor-market dynamics matter in ways I’ll get to in a moment.
The first chart just plots recent monthly job gains with a smooth trend line going through them. The point is just to show how if you filter out the monthly noise, we’ve been adding around 180,000 a month for a while.
Monthly Payroll Changes
That’s fast enough job growth to slowly reduce the stock on the unemployed and provide slots for people coming into the labor force, although if you’re still paying attention, you’ve got to be wondering why the labor force is shrinking.
That brings us to the second point. Here we’ve got the new, ugly October result noted above — the big decline in the labor force. I don’t think that number is right — meaning I think there’s something odd or noisy happening in the monthly participation data. But if that decline is overstated, it’s still pointing in a consistent direction: the negative trend in labor-force participation is really quite concerning.
In the next chart (which uses the same trend smoother to get around the bips and bops in the household data), the October 2013 result is well below the trend — and other big drops, as seen in late 2009, have been transitory. Also, I looked at the non-seasonally adjusted data and found that since 1961, there have been only three other Octobers when the labor force declined, so this is an unusual drop in an unusual month (shutdown, later-than-usual survey date).
Labor-Force Participation
So I’d discount the magnitude of the labor-force drop, but the trend is real, it’s alarming, and it’s inconsistent with an economy that’s supposedly providing more labor market opportunities. Researchers have shown that some of the drop is to be expected given our aging demographics, but not this much. (I’d say half, at most, can be attributed to demographics, and probably more like one-third.)
Finally, you just don’t see the shutdown in these numbers the way we expected to. One reason is misclassification — furloughed government workers were supposed to be counted as unemployed, but some were registered as just being absent from work. But outside of government, I didn’t see much from the payroll survey that would lead me to believe that the waiter in the cafe outside the shutdown national park was laid off.
As this week’s prodigious data flow comes to end, here’s what I’m concluding:
- The pop from the 2.8 percent gain in gross domestic product in the third quarter isn’t quite as good as it looks, as it was partly goosed by an inventory buildup unlikely to be repeated; government austerity and moderated consumer spending are still in those data; and the economy’s growing at trend, not faster.
- The job creation machine is somewhere between second and third gear, consistent with trend G.D.P. growth; that’s O.K. — in fact, given the fiscal drag, shutdown, debt-ceiling madness and generalized dysfunction, it’s a lot better than O.K. and a testament to how resilient our economy can be. Imagine what we could do if we had good policy!
- But the persistent and sharp fall in the labor force is really just flat out scary in terms of future growth at the macro level and future household economic well-being at the micro level.