The November payroll jobs report revealed a disappointingly low increase of only 210,000 new jobs, even though the unemployment rate fell 4.2%, its lowest level since the pandemic started in February of last year.
It should be underlined that the unemployment rate figure is derived from the monthly household survey, which also reported a huge 1.1 million jobs increase in November. The payroll survey information is derived directly from employers.
So, one must sympathise with the pundits that have trouble untangling the real story behind the US jobs market when there is an apparent disconnect between the more optimistic household survey, from which the unemployment rate is derived, and the sluggishness associated with the payrolls survey.
Nonetheless, November’s 4.2% unemployment rate was only slightly higher than its pre pandemic low of about 3.5%. However, in assessing the significance of the attractive 4.2% figure one cannot ignore the fact that many Americans have left the formal work force and are neither employed nor looking for work.
Pre pandemic America’s labour force participation (LFP) rate was over 63%, while in November it increased to 61.8% from 61.6% in October.
The pandemic triggered a major decline in America’s labour force participation (LFP) rate, which decreased the size of the potential work force, and which also triggered labour shortages as the economy started to recover.
Turning to the employer survey, average hourly wage earnings rose 0.3% in November, but over the last 12 months, the wage increase was 4.8%.
Even though wages rose significantly in November, employers are still struggling to find new hires, and there are still 2.4 million fewer workers in the labour force than before the pandemic began.
It should also be pointed out that the October consumer price index rose 6.2% over last 12 months, so in fact, the real purchasing power of American workers has been shrinking even as the economy moves out of its downturn.
Of course, declining real (inflation adjusted) wages partly explains the labour shortages and the increased labour turnover in this recovery period.
Finally, while the two different surveys often present a consistent picture about the US job market, they often tend to confuse at major economic turning points.
As pointed out by Nelson D. Schwartz and Talmon Joseph Smith of the NYT, over the past half year the survey of households had been reporting significantly weaker job growth than the payroll survey, until last month, when it was much stronger.
In closing, the US economy has come a long way since the depths of the pandemic and has added back more than 18 million payroll jobs since the recovery started. But this still leaves America short 3.9 million jobs compared with February of 2020.
So don’t be misled by pundits which tell you that a healthy and balanced job market is just around the corner. We still have a long way to go, and declining real wages and job shortages make that task all the harder.
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