Things are good, if you ask economic optimists. The latest employment report showed 248,000 jobs created in September, with the unemployment rate dipping to 5.9%. Pressure will mount on the Federal Reserve to end its super-easy monetary policy and begin raising interest rates. And it's not a one-month fluke: Job creation this year has averaged roughly 220,000 new jobs per month, the best pace of job growth since the boom year of 1999.
Fed Chair Janet Yellen still has a lot of concerns, however, reminding the world about “slack” labor market conditions nearly every time she speaks. That’s why the robust jobs report for September still may not persuade Yellen to speed up the decision to raise short-term interest rates, now considered likely sometime in mid-2015.
Here’s a select set of indicators showing the health of the job market now compared with December 2007, which was arguably the last month of “normal” economic conditions, since that’s when the last recession started:
These numbers show a lot of problems. The unemployment rate gets most of the attention, and it’s been coming down at a steady pace, dropping from 6.7% to 5.9% so far this year. But there are still more than 16 million Americans who are unemployed or working less than they want because they can’t find a good full-time job. That’s 4.2 million more than in 2007.
Many others have dropped out of the labor force, which shows up in the numbers as a 3.3 percentage point drop in the participation rate since 2007. That might not seem like a big number, but it represents something like 7 million people who would be working or looking for work if they hadn’t dropped out. Combined with all the unemployed and underemployed, that’s a lot of people who are contributing less to the economy than they would have in a 2007 scenario. Some draw government subsidies funded by taxpayers, with no other income.
The other big bummer is hourly wages, which have barely risen since 2007 when factoring in inflation. And that’s just for people with jobs. If you included people who used to have jobs but no longer do, the earnings number would be negative, which is why median household income is still far below where it was in 2007. That means people with jobs are barely staying even with inflation, on average, while the ranks of the economically distressed have swollen significantly.
The Fed still hopes super-low interest rates will help stimulate hiring, but the connection is tenuous at best. Low rates stimulate the economy in a number of ways, making it cheaper for companies and consumers to borrow. But a lot of factors are still working against job creation. Companies aren’t really using borrowed money to make big investments and create jobs. They’re more likely to use it to repurchase stock or pay dividends to keep shareholders happy.
As for consumers, low rates have likely helped the auto industry recovery, because lenders are willing to take on subprime borrowers, and loans are clearly helping to finance car purchases. It’s a much tougher slog in housing, though. Lenders have been slow to loosen credit standards, making it tough for potential buyers to get approved for a mortgage.
The broader question is whether the economy will ever return to prerecession levels. Some economists think the portion of adults choosing to work will stay where it is or decline further--instead of rebounding to prior levels—because there’s a dearth of workers with the skills needed to thrive in an increasingly automated digital economy. Forecasting firm IHS Global Insight predicts median household income won’t bounce back to prerecession levels until 2019. Yellen’s current term as Fed chair ends in 2018.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.