What to Watch on Jobs Day: A steadily improving, but still-weak labor market for the next president
Amidst lots of questions about the economy heading into the presidential election next week, I thought it would be appropriate to provide a brief analysis of where the economy is today. Since the Great Recession and aftermath, the labor market has improved at a remarkably consistent and steady rate. But as steady and long-lived as the recovery has been, it has not yet been fully cemented into a healthy, full employment economy. The improvement is easy to document. It can be obviously seen in the underlying growth in total payroll employment and precipitous drop in the unemployment rate. The still-unhealed damage is illustrated by remaining slack that has led to still slower than targeted nominal wage growth and underperforming prime-age employment-to-population ratio.
For its part, aside from a tap last December, the Federal Reserve has been keeping their foot off the brakes, letting the labor market soak up the slack. They should continue to do so until it’s all gone. In the last year, the labor force participation rate has risen, while the unemployment rate held steady. So, yes, the economy is on the right track. And, if payroll employment stays on course, the unemployment rate will start coming down again even as missing workers continue to enter or re-enter the labor force. And, as this happens, workers and would-be workers will be in shorter supply, finally giving them the leverage to bid up their wages.
The next president will inherit an economy that is well on its way to full employment, but not there yet. It has clearly improved, and it’s worth reminding people where we were eight years ago in November 2008, when we lost 769,000 jobs in a single month. Because the damage done by the Great Recession was so profound, the healing has taken a long time. But policymakers need to make continued recovery a prime goal. The options for this are long, and hopefully there will be plenty of opportunities for the next president and Congress to make big and bold investments in much-needed physical and human capital infrastructure, which will not only be a short-term boost, but also support the long-run health of the economy.