True economic recovery has begun, but there’s a long way to go.

The BLS has put out their March 2016 jobs report, and there is some good news. 215,000 jobs were added that month, a solid number. There is some much better news however: The labor force grew by 396,000. The labor force participation rate is now up to 63%[1] This is on the heels of a strong February report where 555,000 people joined the labor force[2], and March was the 6th straight month of labor force growth.

This is significant because for years while millions of jobs were being created, millions of people were also leaving the labor force. Often more people were leaving than were finding jobs. Part of this has been due to people retiring, but much has been because of people simply giving up looking for work. This trend started to level off in 2014, and it seems that people may finally be returning to the labor force, finding jobs or looking for jobs. This is seen in the chart below:

lfpr

 

There are always ups and downs, but this has been the strongest labor force return in 6 years, and it seem very possible this is a longer term trend, not just a temporary blip. While this is great news, it means people are gaining confidence in the economy, it also means that strong recovery has only just started. We have a long way to go to just fill the hole left by 7 years of people leaving the labor force. The official unemployment rate is 5%, still a bit behind the level reached under Bush (4.5%) and a good bit behind Clinton’s (3.9%). Baby Boomers retiring will help those entering the labor force, but still there is a long ways to go to fill the hole left by the great recession, especially when considering population growth.

In Jan 2015 EPI calculated at a job growth rate of 246,000 a month, which we have largely followed, it would be August 2017 when we return to pre recession employment, with population growth taken into consideration.[3] This would be 8 years after unemployment peaked, and means we still have a year and a half to go, just to reach pre recession employment levels!

EPI

This brings up another long term issue: Wages

With so many people out of the labor force, even as employment grows there has been almost no upward pressure on wages, and even now as people return to the labor force, because so many left, I forsee little upward pressure on wages anytime soon. In fact, as people return, it’s possible there will be even less wage pressure as there could be more competition for jobs.

Making this situation worse is the fact lots of job growth has been low wage. In January 2016 151,000 jobs were added, 105,000 of which came in retail and food/drink services.[4] That is 70% of jobs created coming in low wage sectors. This is not a one time or recent phenomenon either. A study shows the bulk of jobs created, (44%) since 2008 have been low wage.[5]

It’s not just a problem at the lower end either. Across the board wage growth has remained sluggish despite the steadily falling unemployment and years of solid job growth. In fact wage growth remains well below the 3.5 to 4% range that is consistent with Fed targets of inflation and productivity. These are both seen in the chart below by the Economic Policy Institute[6]

epi

When broken down by percentile, we see that for half of American workers wages remain flat from or less than where they were in 2007, as seen in the chart below.

epi

This report also notes that from 2014-2015 most of the rise in real wages were due to lower prices rather than significantly higher wages. Also interesting to note is the rise of wages in the bottom 10% of workers for several years, which has been due largely to minimum wage hikes happening in many states around the country.[7] It can be seen that wage growth in the bottom 10% has now exceeded those at the 30 and 50th percentiles, showing the power of minimum wage hikes for those at the bottom.

So, while there has been good economic news in recent months, the recovery still has a long way to go. We are not at risk of the economy getting “too hot” and in fact we are only starting to see signs of true economic recovery. This is especially true of wages which have only started to see an uptick for 70% of US workers in the last couple of years, and remain well below where they need to be.

Sources/References:

1: http://www.bls.gov/news.release/archives/empsit_04012016.pdf

2: http://www.bls.gov/news.release/archives/empsit_03042016.pdf

3: http://www.epi.org/blog/at-an-average-of-246000-jobs-a-month-in-2014-it-will-be-the-summer-of-2017-before-we-return-to-pre-recession-labor-market-health/

4: http://www.bls.gov/news.release/archives/empsit_02052016.pdf

5: http://www.nelp.org/content/uploads/2015/03/Low-Wage-Recovery-Industry-Employment-Wages-2014-Report.pdf

6: http://www.epi.org/nominal-wage-tracker/

7: http://www.epi.org/publication/wage-inequality-continued-its-35-year-rise-in-2015/#epi-toc-2

 

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