There’s no magic number when it comes to jobs and the economy
Tuesday, August 09, 2016
Paul Zukowski provides a monthly economic report that gets past the boring stuff with a little humor and a lot of insight. His goal is to equip you with the economic analysis tools you need to help keep competitors from eating your lunch.
I can sense continuing excitement brewing among those, including me, who watch economic statistics like they were some sort of Olympic event.
Why are the numbers creating excitement, you may ask? Because — hold onto your hats — the monthly new-jobs-created figure hit 255,000 for July!
What, no cheering? C'mon, the stable of economists polled by the Bloomberg financial news organization had only bet on 180,000 new jobs. And 255,000 is 42 percent higher.
Oh, I see, you realize 255 is a bigger number than 180 by said 42 percent, but lack a context for what this stat means. Well, every new job that is added to the national economy means two important things for small businesses to capitalize on:
- There is more demand for goods and services (why else would firms be adding people to the payroll?)
- There will be more wages paid and therefore more money going around to help keep demand high
Voluntary job changes
Now, jobs added is not the whole picture. On an average month in the U.S., there can be up to 4 million voluntary job changes as people try for something better paying (frictional unemployment) or bail out of fading industries and business failures (structural unemployment).
Economists call this "churn." Currently, our economy is experiencing a healthy churn rate.
Percentage of workforce employed
Some economists draw conclusions from tracking what percentage of the entire available workforce is holding down a job. The Labor Force Participation Rate in the United States increased to 62.8 percent in July from 62.7 percent in June of 2016.
Not a lot of excitement there. Call me when and if fewer people are employed than are unemployed — if that's even viable.
This remained unchanged from June at 4.9 percent, so we can take a breath. That's a pretty low unemployment rate, historically speaking.
Could steps be taken to take it even lower? What should the unemployment rate target be and why? Some might naively suggest we shouldn't stop until every person who wants a job has one. But looking deeper, there's that natural churn in the labor market we addressed earlier to keep in mind.
Another consideration is the pressure on inflation a tight labor market can produce. When you're bidding for the last available talent, salaries could skyrocket. Thus, "full" employment will never mean zero percent unemployment, but rather it will be an acceptable level of unemployment somewhere above zero percent.
Looking ahead to next month, we'll see if the Federal Reserve Bank stands firm after having raised rates for the first time in a decade this December.
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