Get used to jobs numbers like those newly reported for the United States Friday morning — if we’re lucky.
It’s not that the new data blew the lid off expectations or pointed to some radical acceleration in job growth in the opening weeks of 2016. Quite the contrary. The nation added 151,000 jobs in January, which was below analysts’ expectations and well below the revised 262,000 jobs added in December. That looks an awful lot like “reversion to the mean,” and it wouldn’t be surprising if final revisions show a slower pace of job growth across the two months.
But while economists and financial markets have traditionally placed the greatest weight on that payroll number as the key indicator of whether economic growth is speeding up or slowing down, we’re entering a phase where some other components of the jobs report are more important.
Think of it this way: Millions of people lost their jobs during the 2008-2009 recession, and during the last seven years the biggest question has been how quickly they got back to work. But now that job is largely accomplished, and the United States has 4.9 million more jobs than it did at the onset of the recession in December 2007.
Mathematically, the rate of job growth will have to slow as we get closer to full employment, simply because the number of people available to be hired can over the long term only grow in line with population growth, which would be something below 100,000 jobs a month.
The questions now are more subtle. Here are the questions — and the answers offered by the January data.
How close are we to full employment?
The jobless rate fell to 4.9 percent in January, the first sub-5 percent reading since February 2008. That’s good news, particularly because the details of the survey from which the unemployment rate is derived show that the rate fell for good reasons (more people working) instead of bad ones (people dropping out of the labor force).
What exactly constitutes full employment is open for debate, but it’s important to note that we are now within sight of a jobless rate that matches the low point of the 2002-2007 expansion (4.4 percent, achieved in several months in 2006 and 2007).
Are more people joining (or rejoining) the labor force?
During the crisis, millions of Americans dropped out of the labor force, and a key question for understanding the United States’ economic potential is how many can be coaxed back in as the job market improves.
The January numbers report good news on that front. After adjusting for the updates to the Labor Department’s population estimates, the size of the labor force rose by 284,000 in January, and the ratio of the population that is employed ticked up by a tenth of a percent, as did the labor force participation rate.
It’s hardly enough to solve the problem of America’s missing work force, but for one month at least the numbers were pointing in the right direction.
Are wages finally rising?
With full employment within sight, the big question is less how many jobs are being added and more about how much workers are being paid. Here too there was good news in January, with an 0.5 percent rise in average hourly earnings and a small increase in the length of the average workweek.
That still leaves wage growth over the last year at 2.5 percent, below its pre-recession levels. The silver lining is that inflation has been so low over the last year, thanks in large part to a drop in energy prices, that the 2.5 percent increase in an average worker’s pay translates into a meaningful gain in buying power.
As we get closer to full employment, it is inevitable that job creation will slow. But so long as these other indicators in these monthly reports keep showing improvement in 2016, it will be a good year for American workers anyway.
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