What to Watch on Jobs Day: Weather-Related Revisions, Thoughts on Austerity, Missing Workers, and Nominal Wages
As another Jobs Day approaches, there are a few things I’ll be thinking about and watching for: the top line payroll employment numbers and whether the February number will get revised downward (because of the weather); the effect that proposed budget cuts could have (and the harmful effects that austerity has had so far on the economic recovery); whether more people enter the labor force in March as job opportunities appear to be on the horizon and what that does to our missing workers number (and the official unemployment rate); and, of course, what’s happening with nominal wages (and the patience of the Fed).
While payroll employment has picked up in the last year, February’s numbers—295,000 new jobs—came in a little higher than expectations. It’s possible that revisions may lower that number slightly, because of the unseasonably large amounts of snow that fell mid-month. However, we should not put too much stock into any small deviations from trend. Job growth has been solid, and as long as it stays that way, a return to pre-recession labor market health is about two years away.
I’m optimistic for stronger growth and a faster recovery, but the recent budget talks are a reminder that policymakers can actively slow (or if they choose, speed up) recovery by depressing (or increasing) demand. As the budget debate continues in Congress, it is important to remember that more stimulus, not austerity, would have aided in the labor market recovery. Austerity at all levels of government continues to be a drag on the economy. One clear direct effect of austerity is that public sector jobs are still nearly half a million down from where they were before the recession began. And, this fails to account for the fact that we would have expected these jobs to grow with the population—taking that into consideration, the economy is short 1.3 million public sector jobs. This shortfall in jobs in turn removes the multiplier effect on private sector demand, snowballing into an even slower recovery. Furthermore, cuts to public programs (like SNAP) not only hurts families, but also lower the demand needed to spur on job growth.
Although the future is uncertain, the solid growth in jobs over the last several months has been a positive sign, and I expect labor force participation to pick up, and the number of missing workers—people who have left (or never entered) the labor force, but who would be working or looking for work if job opportunities were significantly more robust—to go down. Because jobless workers are only counted as unemployed if they are actively seeking work, as these missing workers return to the labor force in pursuit of increasing job opportunities, the official unemployment rate may stay elevated for a while (or even rise)—this may be a positive sign of continued labor market recovery.
Another strong sign of a slack labor market—evidence that we still have far to go before full recovery—is the continued sluggishness of nominal wages. Nominal hourly wage growth remains far below target, rising at only about 2.0 percent over the last five years. We will continue to track all the wage series available (including the quarterly series which will be updated tomorrow) and to advise the Federal Reserve to restrain from putting the brakes on the economy until there has been strong and consistent wage growth.