The November jobs report crushed it.
The Bureau of Labour Statistics reported that the US economy added 211,000 jobs in November, while the unemployment rate held steady at a seven-year low of 5%.
But while this is great news, this is sort of unexpected. Or, rather, nobody saw this coming a few years ago.
Following Friday’s announcement, the Chairman of the President’s Council of Economic Advisors Jason Furman wrote in a post that “the unemployment rate has consistently fallen much faster than economists expected throughout this recovery, reaching 5.0% considerably earlier than projected.”
If you take a look at the chart that he shared below, you can see the median paths of unemployment rate forecasted in each of the past four years by private-sector economists. Each one is above what the actual unemployment rate was.
Even as late as March 2014, writes Furman, economists were thinking that the unemployment rate would remain about 5.0% until 2020. At least.
But, “each year the unemployment rate decline markedly faster than economists expected, a testament to the remarkable pace of the unemployment growth observed through this recovery,” he writes.
However, it’s important to note that this stunningly good rate doesn’t tell the whole story.
Notably, the labour-force participation rate, or the share of American civilians over the age of 16 who are either working or looking for a job, has dropped pretty dramatically, with an acceleration in that drop following the 2008 financial crisis and the Great Recession.
After hitting a 38-year low in September and October, the labour-force participation rate ticked up a tenth of a percentage point in November to 62.5% from 62.4% last month, according to the November jobs report.
An August analysis by the President’s Council of Economic Advisors suggests that about half of that drop comes from structural, demographic factors (aka Baby Boomers are starting to retire), but the other half of that comes from cyclical factors tied to the Great Recession.
Additionally, wage growth has remained kind of low, hovering around just 2%, since the Great Recession. In the November report, wage growth rose 2.3% year-over-year, slightly below October’s 2.5% rise year-over-year.
Furman acknowledges both of these lacklustre stats, but still optimistically ends the blurb with: “But the strong progress so far is encouraging evidence of the health of our labour market.”
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