Time Machine Economics: Unemployment Rate Drops to 49 Year Low

The United States’ second-longest economic expansion and the longest period of consecutive job growth continued its roll last month. This morning the Bureau of Labor Statistics (BLS) released the September national labor market statistics showing further increases in employment and decreased unemployment, in spite of possible temporary job losses from Hurricane Florence.

Employment and Unemployment

There are two big news items you’ll hear regarding the jobs report released by the Bureau of Labor Statistics today. First is the unexpectedly low number of newly-created jobs—economists polled before the release of the official estimates anticipated that the economy created around 185,000 new jobs last month, but the BLS estimate was 50,000 jobs (134,000) under that expectation. Despite the seeming under-performance of job creation, the unemployment rate dropped to 3.7 percent—the last time the unemployment rate was this low was 49 years ago in October 1969. The BLS estimates that 270,000 fewer people are jobless and actively looking for work in September compared to August.

The comprehensive jobless rate (CJR) also fell by 0.3 percentage points to 6.7 percent, the lowest the rate has been since April 2000. Based on Mercatus Center research, the CJR offers a benchmark comparison for the official unemployment statistics reported by the BLS. It provides the highest possible estimate of joblessness by including everyone who says they want a job, regardless of their current availability to start employment or how long it has been since they have actively looked for work.

But the good news keeps coming, because the BLS revised the job creation estimates for July and August upward by a total of 87,000 jobs. This is equivalent to almost another half month's average job growth (job growth has averaged around 200,000 new jobs per month so far in 2018). While such changes are typical of seasonally-adjusted estimates, the size of this revision—the BLS now estimates that 270,000 jobs were created in August—was unexpected.

The decrease we saw in the long-term unemployment estimates last month tapered off and there was a slight increase in the number (1.38 million) of people who have been looking for work for at least 27 weeks. In addition, the number of people who were working part-time but wanted full-time employment also increased 5.7 percent to 4.64 million. But these small negative employment shifts are overshadowed by the larger good news that the number of active job seekers fell by 270,000 and the total number of job-wanters fell by 422,000, a 3.8 percent decrease overall.

It's possible that Hurricane Florence affected the jobs numbers somewhat, but the storm didn’t make landfall until September 14, two days after the end of the ‘reference week,’ in which the BLS/Census surveyors ask people about their employment status. The hurricane also missed most highly-populated areas, so its influence on the national labor market statistics should be fairly mild.

Wages

Annual wage growth fell slightly last month to 2.8 percent, while annual growth in weekly earnings also dipped to 3.1 percent (compared to last month’s 2.9 and 3.2 percent). The lack of strong wage growth, given the low headline unemployment rate, has puzzled many economists. There are various explanations for this, and each might be contributing in its own way:

• Inflation is not substantially eroding wages. The BLS estimates that inflation rose by 2.7 percent over the last 12 months and it has averaged 2.6 percent annually over the last 30 years. The previous 30 year period experienced higher inflation, leading employers to raise wages or risk losing workers to businesses which had.
• Energy prices, which previously had been a substantial driving factor of inflation, especially as the economy grew and demand for energy rose, are more subdued since fracking technology vastly increased access to known oil and gas resources in the early 2010s.
• Periods of higher wage growth were generally concurrent with periods of stronger productivity growth. Contemporary average productivity growth is substantially lower.

Furthermore, just because wages are not substantially growing does not mean that compensation is not increasing. There’s a large body of reporting that suggests employers are offering increased monetary and non-monetary employment benefits instead of directly paying workers more. As employees desire better work-life balance, employers are also reporting that work flexibility and “quality of life” benefits are highly sought after.

• A national survey of employers and employees conducted by The Harris Poll for CareerBuilder found that companies were offering quality of life accommodations to attract employees, including casual dress codes, flexible work schedule, ability to work remotely, extra paid time off, free lunches, gym memberships, and employee discounts.
• Dog-friendly workplaces have become more popular and some employers are going so far as to pay for pet insurance, “doggie day-care”, and “pawternity leave” to attract the top talent for their business.
• A few companies are starting to offer programs to help workers pay off student debt.
• A number of states—most recently Massachusetts—have mandated that employers offer paid sick leave and paid family medical leave. While these employment benefits are often favored by employees, they do represent a cost for employers, meaning that they would tend to restrain wage growth that might otherwise occur. As these policies are adopted by other companies and legislated by other states, they will likely continue to transfer compensation growth from wages to benefits.

None of these employment benefits would count towards ‘wage growth,’ although they are certainly all part of an employee’s overall compensation. A recent White House report illustrated this same point.

Opportunity

The most recent Job Openings and Labor Turnover Survey (JOLTS) data release shows that there were over 650,000 more jobs available than were active job-seekers available to take them (6.94 million jobs vs. 6.28 million job-seekers; Note: These are estimates for July 2018).

The strength of the current job market offers hope for those who are dissatisfied with their current employment situation because it’s essentially a “sellers’ market” for people who are willing to pursue new employment opportunities. This is especially true for those professions where there’s a low ratio of job applicants for each job opening like healthcare (especially nursing and home health-care), trucking, software development, and construction.

• The American Trucking Associations estimated last year that there would be a shortage of 60,000 truck drivers in 2018.
• 91 percent of the more than 2,700 contractors and construction managers surveyed by the Commercial Construction Index report having difficulty in finding skilled workers.
• Despite high demand, hospital employment growth has recently slowed due to a shortage of qualified workers. Healthcare staffing consultancy Mercer estimates that there will be a shortage of almost 450,000 home health aides by 2025.
• The App Association reported in April 2018 that there were over 500,000 unfilled computing jobs across the U.S.

Quick Statistics from the September BLS Jobs Report

Headline Employment Statistics

• Total nonfarm payroll employment increased by 134,000 jobs.
• The labor force participation rate held steady at 62.7 percent.
• The headline unemployment rate (U-3) fell 0.2 percentage points to 3.7 percent. This is the lowest headline unemployment rate in 49 years.

Unemployment Statistics

• The mid- to long-term unemployment rate (15 weeks or longer; U-1) held steady at 1.4 percent.
• The discouraged worker unemployment rate (U-4) fell by 0.2 percentage points to 3.9 percent.
• The comprehensive jobless rate (U-5b) fell 0.3 percentage points to 6.7 percent.

Deeper Unemployment Statistics

• Long-term unemployed workers (27 weeks or longer) rose by 52,000 to 1,384,000; the proportion of long-term unemployed workers increased to 23.0 percent of those who are unemployed
• The number of people who wanted to work full time, but who could only find part-time work for economic reasons, increased by 263,000 to 4,642,000. The proportion of all part-time workers who wanted a full-time job increased by 1.1 percentage points to 17.8 percent.

Wages

• Average hourly earnings rose by 2.8 percent over the previous 12 months.
• Average weekly earnings rose by 3.1 percent over the previous 12 months.

Photo credit: David Zalubowski/AP/Shutterstock