Jobs Report Reminds Us: Never Look a Gift Horse in the Mouth

Friday morning's Bureau of Labor Statistics (BLS) October employment report told us that the U.S. economy added 261,000 workers to the nation’s payrolls, and the unemployment rate fell ever so slightly to 4.1 percent.

Unfortunately, for an economy that outwardly seems to be scooping up the last available workers, this growth did not come via workers who had previously withdrawn from the labor force. Put another way, the labor participation rate fell slightly.

Stronger than average for the year, October’s high employment growth confirmed two things:

First, the early fall hurricanes, Harvey and Irma, while imposing devastation on Texas, Florida and parts of Georgia, did not meaningfully disrupt the economy.

Second, the economy’s sleepwalking pace of GDP growth will continue apace. This is another way of saying that the job report, while positive, offers nothing to suggest that the 2017 economy has suddenly caught fire. In fact, on the basis of a five-month moving average, the longer trend for monthly job gains (while looking as though it may be just starting to turn) is still headed south.

In August and September, when the two hurricanes struck, the U.S. economy was generating 2.2 percent real GDP growth and had added, on average, 172,000 jobs each month in 2017. On Oct. 6, the Bureau of Labor Statistics indicated that the U.S. economy sustained a net loss of 33,000 jobs in September, now revised up to 15,000 gained. This suggests some 157,000 job additions (172,000 minus 15,000) were erased by the two hurricanes.

Then, on Oct. 27, the Department of Commerce’s first estimate for third quarter 2017 real GPD growth arrived, showing 3.0 percent real growth. In a word, the economy was not at all derailed. It was chugging with a full head of steam — though on a four-quarter moving average basis, GDP growth was still registering only a pedestrian 2.3 percent.

Today’s BLS report again showed that when it comes to employment, education matters a lot. The unemployment rate for those without a high school diploma stands at 6.7 percent. For those with a college degree, the rate is 2.5 percent.

It is also worth noting that a large amount of regional variation lies behind the veil when we focus on the national unemployment rate.

In September, the most recent month for which we have state data, the unemployment rate ranged from a low of 2.4 percent in North Dakota to a high of 7.2 percent in Alaska. Clearly parts of the country still have a sleepwalking economy and others do not.

In thinking about pending tax reform, reduced regulatory burdens and related employment prospects, it is possible that the economy may indeed “wake up” and that GDP and employment growth would break into higher growth territory. There is little doubt that the economy’s supply side matters. The debate is about just how much it matters.

Old timers advise that one should never look a gift horse in the mouth. So, even as we approach the particulars with a sober assessment, let’s celebrate this positive BLS report. The economy is providing income earning opportunities for a growing number of workers.