What's a weak jobs report?

Friday, October 06, 2006
New jobs numbers came out today. The report was a weak one (51,000 jobs added in September), but the bad news was balanced by upward revisions in July (Initial 121,000, revised upward by 2,000) and August (initial report 128,000, revised upward by a whopping 60,000). And the unemployment rate dipped to 4.6%.

50,000 jobs is a weak report by any measure, but the growth of the working age population (20-64) has slowed markedly over the last few years. Slower growth in that population means that fewer jobs need to be created to keep pace. To quote Bloomburg.com

Because fewer people are entering the labor force than in years past, a smaller number of new jobs is needed to keep the unemployment rate constant, economists said. That number is now about 130,000 per month, Fed Chairman Ben S. Bernanke said in testimony to Congress in July, while Chicago Fed President Michael Moskow put the figure at 100,000. The number used to be as high as 150,000, economists say.


The census provides estimates of growth in the key 20-64 population group from 2000-2005:



2000-2001: 2.43 million
2001-2002: 2.41 million
2002-2003: 2.26 million
2003-2004: 2.12 million
2004-2005: 2.09 million

Based on census estimates of the US population in 2010, 2020, 2030, 2040, and 2050, I've interpolated an estimate of growth rates in this group over that period (click to zoom in).



By my estimate, in late 2006 the growth rate is about 1.75 million per year. And dropping off a cliff. By this time in 2012, we'll only need to create 65,000 jobs a month to keep pace - that's just six years away. In a decade, we'll need only 30-35,000. By 2021, just 25,000.

Some people seem to think this number is static - like this guy:
First, no one should brag about creating 128,000 jobs in one month, since it is widely accepted that you need to create 150,000 jobs per month just to keep up with population growth.

Not that widely accepted, really. What is accepted is that the number of jobs we create in a given month is likely to be somewhere near the net increase in the number of people in the working age population during that month. And in fact, we shouldn't expect the numbers to be much higher than that, at least not for very long, because you simply can't grow the number of people actually working faster than the number of people available to work for very long without starting to wonder what negative unemployment is, exactly.

People walking around with old numbers in their heads often think they've figured out that falling unemployment is a sham - they know the jobs number is too small to produce shrinking unemployment, so they know that real unemployment is rising, not falling. But they're wrong, and feel free to tell them so.

4 comments:

Rick Ballard said...

Interesting analysis. The NYU grad student are an idiot and the Bloomberg reporter's line of "The number used to be as high as 150,000, economists say." is totally disingenuous. Horse manure removal used to have a significant impact on city budgets.

There is also the consideration of labor force participation which has fluctuated within a 2 per cent range over the past twenty years depending upon how 'hot' the economy is. Right now it's at 66.2% against an all time high of 67.2%. One per cent of the civilian labor force is 1.45M jobs so it's possible that the job creation number might go over 150K again for a year or two at peak cycle - if it happens within the next three years.

What has to happen is a wage increase above the level of productivity gain in order to draw a sufficient number of workers. That's going to be interesting to watch and may already have started.

Morgan said...

Rick:

The NYU grad student knows things, passionately and without having to think about it too much.

The other piece of news I left out of the post is that the benchmark revision will be in the range of 810,000 jobs. That's an undercount of almost 70,000 per month, which is an incredibly large bias relative to the 100-130K monthly net gain in the workforce. In ten years, we could conceivably see every monthly jobs report come in negative while unemployment drops to 3%. Heads would explode.

I agree that demographics will force real wages higher in the coming years. Until I looked at the data, I had no idea the drop would be so steep, or the trough so deep. Labor's bargaining power should certainly rise.

I wouldn't be surprised to see labor force participation pushing record highs within three years, especially if we're at peak then.

Barry Dauphin said...

I saw this Rutgers economist on the Newshour tonight bemoaning the low growth in creation of jobs. Very doom & gloom. He said construction jobs were weak. The other economist from the Hudson Institute asked how can you say construction is weak when there are now more americans working construction jobs than ever before and unemployment is at 4.6%. The Rutgers guy said, no, let's talk about growth. he then rattled the 150,000 number with the same intensity of someone facing Mecca five times a day.

Morgan said...

Barry:

Any economist quoting the 150,000 figure should not be in public talking about the issue. It's sort of like a psychologist propounding the theory of humors in public.

Grounds for termination, I would think.