Yet another month of new U.S. jobs numbers has been issued by the stalwart, fabled and relentless Bureau of Labor Statistics (BLS). As Red Skelton might have said: “God Bless.”
Besides the persistence of the Bureau, if there is anything that hasn’t changed in decades, it’s the way analysts and pundits react to the job and unemployment numbers each month. The headline story this time is that U.S. jobs grew by a healthy 288,000 in April, as the unemployment rate dropped to 6.3 percent. None of that of course was buried on Page Seven. What was missing too often was context; what I like to call the economic Ether.
Because they don’t want to sound like broken records, analysts each month search for something new or controversial to explain the numbers: Obamacare deadlines, interest rate gyrations, gasoline prices, the cold wave, the heat wave, budget brinksmanship, Washington gridlock, events in the Ukraine. The stuff in the Ether is much more edifying, and daunting, I will get specifically to that in a moment.
How did the media report the April numbers? This was the basic narrative:
“These are really good and surprising job growth numbers; and an amazing drop in unemployment, beating most forecasts. Yipee! But,wait a minute, it looks a lot better than it really is. This is just a rebound reflecting pent up demand after a quarter of business activity stymied by bad weather. [Note: earlier, these same pundits said weather really didn’t have much to do with first quarter weakness]. Besides, the dramatic drop in the unemployment rate is not an indicator of strength; its due to 800,000 more people leaving the labor force [after 500,000 entered the prior month].”
Stock market gyrations on Friday mimicked the script. Up early, down late.
This analysis is not exactly wrong, but it’s distracting; and another missed teachable moment. If you really believe a cloud hides behind every silver lining, then talk about the really important forces in the Ether that account for it, even if you have to sound like a broken record. It doesn’t mean you have to recount forty years of economic history each time, There is a middle ground.
Before getting to the Ether, I am chomping at the bit to point out that data indicating 500,000 people (suddenly) entered the labor force in March, followed by 800,000 dropping out in April, is plainly wrong. I would be embarrassed to report it, if that’s what my models showed. It’s an artifact of quirky methods and monthly measurement errors. Maybe the average for the two months is correct. (After they do all the cleansing and revisions, which sometimes take a year or more, the BLS does do pretty good work. And I am grateful for them).
That reminds me of another BLS methods issue, which will sound a little nerdy, but is vital to understanding the economy. The Bureau and many economists talk all the time about the “drop” in the labor force participation rate (LFPR) to “historic lows.” The LFPR is the percent of people 16 or older who are working or looking for work; they are defined as being “in the labor force.”
It is rarely noted that part of the drop in LFPR is undoubtedly due to the aging of the population (and its workers), even if seniors are working longer. I don’t how much of the drop can be explained by by baby boomer demographics, but BLS doesn’t make it easy to find out. And since I’m a semi- retired, unpaid applied economist, I’m not going to dig into the weeds myself. That’s BLS’ job or the responsibility of the noted “chief economists” who comment every month on the job numbers. They have the resources. While they’re at it, they should point out that the aging of the workforce is also part of the all important economic Ether that really explains what’s going on.
That makes for a good pivot and transition to the Ether.
Hardly any mention was made about the Ether in the ritual monthly analysis of the BLS numbers. Just to keep us limber and focused, here is a reminder of some of the elements in the Ether, the ones that aren’t being trapped by greenhouse gases. The elements hardly change from month to month, and they explain a lot.. Here are some of the Ethereal features, in capsule form:
The wealth of middle class households, battered by the Great Recession, remains depressed. Middle class wealth consisted of home equity and retirement nest eggs. Much of that was lost in the Great Recession. Crushing student debt keeps overall household debt high, and the consumer under wraps. The student debt, which prevents young people from buying homes, is a massive drag on the housing recovery and overall economic growth. The shrinking public sector (possibly justified by high sovereign debt), is also a persistent drag on the economy. Public sector hiring in the past has usually helped the economy recover. (Those are real jobs). Yes, we should add the sovereign debt as an Ethereal factor. Forty years of “race to the bottom” keeps workers and their wages in check. The twin forces behind this are “free trade,” which forces U.S. firms to compete with ones abroad that provide meager wages and benefits to workers, and the domestic version of free trade, in which states battle with each other to see which can pay the lowest wages and provide the most tax breaks to companies. Technological “advances” these days give more leverage to big business, replace people with machines and software, favor a few occupations; and widen wage and income gaps. We await the new high paying jobs from these technologies. Finally, there is the aging of the workforce, which is due entirely to baby boomers getting old and retiring. That will continue through about 2030 or 2040, and will depress labor force growth. Its already doing so. (Allowing more immigration to America may ameliorate that). Losing so many experienced workers may depress productivity; and savings as well, since older people tend to dis-invest. Since labor force growth, productivity, and savings are, coincidentally, the three main factors behind economic growth, these elements of the Ether are mighty important.
The Ether capsule turned out to be a bit larger than intended. But something like it can be reduced by editors to 6 point font and used as a preamble to the superficial monthly punditry accompanying the BLS releases. The editors can make room for it by ditching the lead paragraph they were taught to write in Journalism School, about Gertrude and Irving, who live on a hill in Sommerville, and who couldn’t make it to level ground during the snow storm, and missed work. A real human interest grabber, explaining the reasons for low job numbers in December.