Unemployment Rate Drops to Lowest Level since 2007

The March jobs report was released by the BLS this morning.  The real news is that the economic recovery continues.  In terms of data, the unemployment rate dropped to 4.5 percent, the lowest level since May 2007 (nearly ten years!).  That is the good news.


But while the unemployment rate dropped, the number of jobs added was less than recent trends.  In March, 98,000 new jobs were added, but this is significantly below the average of 202,000 for the past five years.


Two words of caution are in order.  First, we don't want to draw significant conclusions from a single jobs report.  On a month-to-month basis, there is a lot of noise in the data.  It is best to consider long-run trends.  In this case, the long-run trend on employment is certainly positive. 

Second, it is still to early to credit or blame our new government leaders for any economic economic conditions that may show up in the data.




January Jobs Report Brings Good News and a Data Lesson

Earlier today, the BLS released the jobs report for January 2017 and the news is not bad.  While the unemployment rate ticked up slightly to (a still low) 4.8 percent, other indicators came in very strong.  Nonfarm employment increased by 227,000 jobs in the month.


Labor force participation edged up to 62.9 percent and this offers us another teachable moment.  Students may be confused as to how 227,000 new jobs were created and yet the unemployment rate increased.  One reason is that the labor force increased by 76,000 workers.  Therefore, many new workers entered the labor force and many of these found jobs - all of this is positive.  But the unemployment rate still climbed because some of these new labor force participants did not find work (yet). These workers are probably frictionally unemployed: they may find work eventually but it takes some time to match workers with available jobs.  



2016 GDP Report: Weak and also Misleading

The advance GDP estimate for 2016 is sobering but also an opportunity to learn a little about the details of how we measure GDP. Let's look at the headline data first and then circle back for a quick lesson in GDP accounting. 

Overall, GDP in the fourth quarter grew at just 1.9 percent, according to this first estimate.  This estimate will be revised over the next three months, but it is not encouraging.  The figure below shows real GDP growth by quarter back to 2006.  The last quarter of 2016 caps off an anemic year of 1.8% growth overall.  2016 pales in historical context, since average real GDP growth over the past 50 years was about 3 percent. 


Now, let's dig a little deeper into the fourth quarter figures to see the contribution to growth from the four major categories of GDP expenditures: consumption, investment, government and net exports.  The table below shows how each of these components contributed to the overall growth rate of 1.9 percent.


Growth in private spending on consumption and investment goods and services was strong.  But net exports (exports minus imports) pulls down the final number by 1.7 percent.  This is largely due to an increase in imports of $65.7 billion during the fourth quarter.  Now we get to the (boring) details of national income accounting.  Imports don't make us worse off - more imports mean we get more stuff from around the world.  But when we tally up gross domestic product (GDP), we subtract imports because they weren't produced here. 

Bottom line: the fourth quarter wasn't great, but the large increase in imports skews measured GDP downward some. 



Unemployment Drops to 4.6%

The U.S. unemployment rate dropped in November to 4.6%, the lowest level since August 2007. 


This is certainly good news, but perhaps not as positive as it first appears.  Part of the reason why the unemployment rate dropped last month is due to 178,000 new jobs added in the economy - not a trivial number.  In fact, as Justin Wolfers notes, this is 178 times the number of Carrier jobs that were recently "rescued." 

But a second reason the unemployment rate dropped is due to a decline in labor force participation.  In November, the U.S. labor force dropped by 226,000 workers, bringing the labor force participation rate (LFPR) down to 62.7 percent.  This is the third straight drop in the LFPR after showing signs of improvement this year with a 63% in March.





Gas Prices Push Up CPI Slightly

Rising gas prices pushed up the Consumer Price Index (CPI) in October.  However, year-over year, gas prices were essentially constant.  In addition, overall inflation over the past year was still just 1.6%.

The table below shows changes in selected goods and services over the past year.  Notice that egg prices continue to drop drastically, but they make up a very small portion (0.1 %) of a typical consumer's budget.  Shelter (housing) prices rose 3.5% in the past year and these account for about a third (33.4%) of a typical consumers spending.   This continues the trend that began in 2010, following the decline in housing prices in the wake of the Great Recession.

CPI Table 1016




Last Jobs Report Before the Election

The jobs report was released this morning and it is not bad news for Hillary Clinton.  The unemployment rate ticked down to 4.9% in October.  Historically, low unemployment rates have helped political parties retain power.


This report could be stronger but it adds to the record string of consecutive months of positive job gains, bringing this record streak to 73 months now.  In October, nonfarm employment grew by 161,000 jobs. While many are touting this record string of job gains, we should point out that these have not been the strongest job gains we've seen historically.  For example, in the eight years from 1993 to 2000, the U.S. economy added an average of 242,000 jobs per month, versus the average over the past six years of 200,000.  That is a big difference over the course of several years.




Goods Exports Push Real GDP Higher in Third Quarter

Real GDP growth is finally ticking up toward the long run average again.  The BEA released it's first (Advance) GDP estimate for the third quarter.  The estimate of real GDP growth came in at 2.9%, which is the highest level in two full years but still below a long run (50-year) average of 3 percent. 


Much of this increase was driven by exports and especially exports of goods.  While total exports make up just 12% of total GDP, exports increased by $66.4 billion in the third quarter.  This increase contributed more than one third of the total real GDP growth in the third quarter.  The contribution of the four major pieces of GDP to third quarter growth is broken down in the table below.

Total net exports contributed 0.83 % but exports of goods alone contributed 1.08 percent.





September Unemployment Rate at 5 Percent

Last Friday, the BLS released their latest jobs report which includes estimates of the unemployment rate and labor force participation rate (LFPR) for September.  The unemployment rate ticked up slightly to 5.0 percent which is essentially where it has been for the past year.  Nonfarm payroll employment, the most closely watched aggregate jobs figure, rose by 156,000 in September. 

The potential good news from the past few reports is that the LFPR may have finally bottomed out.  In September, the LFPR ticked up to 62.9%, which is up from just 62.4% one year ago.






Jobs Report Shows Little Change

The August jobs report from the Bureau of Labor Statistics is very similar to the past few reports: lowish unemployment (4.9%), positive jobs growth (+151K) and disappointing labor force participation (62.8%).  I put this in the category of good (but not great) job reports.

The monthly unemployment rate since 2006 is plotted in the figure below.  This is the most popular statistic in the report and certainly the most positive macroeconomic indicator right now.  You can see why - it is low and this is not bad news. 


But nonfarrm employment increased by just 151,000 jobs in August and the labor force participation rate remains stubbornly low at just 62.8 percent.  So overall, this jobs report is better than our recent GDP reports but just not great.





Is 2% the New Benchmark? I Hope Not.

GDP growth continues to disappoint. Today's advance estimate from the BEA pegs real GDP growth at just 1.22% in the second quarter.  Further, the new report revises the first quarter rate down to just 0.8 percent.  Ooof.  The graph below shows quarterly growth rates in real GDP since the beginning of 2006.
Quaterly GDP July 2016
Before the Great Recession, we got used to an average of 3% real GDP growth for decade after decade.  But since that recession ended, real GDP has grown at just 2% per year. The last four quarters are now: 1.99%, 0.87%, 0.83%, and 1.22%.  A decade ago, we'd consider that a horrible year. 
So why isn't there more concern? Because unemployment rates have been consistently around 5 percent.  But don't forget about the very low labor force participation rate, which is below 63% and this past year has been lower than at any time since the 1970s.  So maybe this is the new normal: 2 percent real GDP growth, 5% unemployment, and millions of workers sitting on the sidelines.  I hope not. 

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