Is the Job Market Really Back to Its 2008 Peak?

Predictions were off. May hiring did not slow as much as forecast and, contrary to expectations, the unemployment rate did not budge from April’s 6.3 percent. The Department of Labor’s Employment Situation Report showed that U.S. employers expanded payrolls by 217,000 jobs last month — a slightly greater gain than the average of 214,000 jobs added per month in 2014. May also marked the fourth consecutive month in which job creation surpassed 200,000, a benchmark for the health of the economy.

Now, “people will start accepting that the labor market is working better than people think it is,” IHS Global Insight chief U.S. economist Doug Handler told The Washington Post. Indeed, the labor market has achieved an important goal; May’s employment gains mean all the jobs lost during the recession have been recaptured, leaving employment at an all time high of 138.4 million people, just above the previous peak of 138.4 million, which came in January 2008. Of course, in the five years of the recovery, the U.S. population has grown, and so the percentage of Americans that are employed remains smaller than before the recession began. According to an analysis conducted by the liberal Economic Policy Institute, more than 7.1 million jobs need to be created to fill that gap. That reality indicates to the think tank’s economist Heidi Shierholz that the United States is “far, far from healthy labor market conditions.”

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Another indication that the job market is far from healthy is the labor force participation rate — the share of working-age Americans who are employed or looking for work. April’s Employment Situation Report revealed that the unemployment rate had fallen from 6.7 percent to 6.3 percent that month. That 0.4 percentage point drop in the unemployment rate came from a sizable decrease in the labor force, meaning workers were still discouraged and unable to find employment. That aspect of the jobs report was by no means surprising; a disheartened labor force and a record low labor force participation rate has characterized the recovery, providing evidence that recovery has not yet reached all Americans.

By comparison, economists expected that increases in worker confidence would push more job seekers into the labor force in May, pushing the unemployment rate up a tenth of percentage point to 6.4 percent. After falling dramatically in April, the size of the American workforce grew marginally. But that small increase was not enough to change the labor force participation rate, which remained unchanged from the previous month’s 62.8 percent. Together, the aging of the baby boomer generation, the discouragement of job seekers, and a lack of new entrants has shrunk the United States workforce to the lowest level since 1978.

A broader measure of unemployment did decrease; the so-called U-6 jobless rate, which includes discouraged workers and involuntary part-time workers, fell from 12.3 percent to 12.2 percent

It could be argued that the slowdown in job creation that took place in May is bad news as well. However, a slowdown is not the most accurate term to describe the reason May’s hiring came in below that of the previous month. While Friday’s report downwardly revised April’s growth, the headline numbers from the Department of Labor’s Employment Situation Report were still staggering, beating economists’ expectations handily. That month, the United States economy created 282,000 jobs, pushing the unemployment rate down 0.4 percentage points to 6.3 percent, the lowest in more than five years. That weighty jobs growth was largely the result of the labor market catching up from the winter slowdown, and since weather-related distortions have ended, the labor market has stabilized, not slowed.

Stabilization means job growth is steady and the recovery of the labor market is on a more sustainable path.

Last month, “employment increased in professional and business services, healthcare and social assistance, food services and drinking places, and transportation and warehousing,” explained the Labor Department’s jobs report. Professional and business services saw the greatest hiring, with employers created 55,000 jobs, while the healthcare industry added 23,000 jobs — double the average hiring rate over the past year. Comparatively, government agencies and the Postal Service have continued to cut jobs. The government now employs one million fewer workers than four years ago.

The problem with the monthly jobs report is that it often contains numbers that that appear to support contradictory narratives, yet each number tells an important part of the recovery story. Broadly speaking, the employment situation is improving; the number of Americans filing for unemployment benefits has dropped to pre-recession levels, meaning that fewer people are losing their jobs. Plus, private employers have been steading creating jobs for four years, and hiring has picked up from the winter slowdown. But that compares with the fact that the number of people working part-time for economic reasons, a segment of the population known as the underemployed, has yet to drop significantly.

During the recession, underemployment soared. The low labor force participation rate, stagnant wage growth, and stubbornly high level of long-term unemployment, which remained unchanged at 3.4 million in May, tempers the story of progress created by falling jobless claims numbers. The general downward trend of jobless claims offer a sign that even though job creation remains sluggish, business remain confident enough to keep workers even if they are not inclined to increase payrolls significantly.

Still, economists now expect the unemployment rate to fall to 6 percent over the next 12 months. Plus, May’s steady hiring numbers — and a number of strong economic reports released this week, like factory orders — signal that the U.S. economic growth has gained momentum this quarter, after contracting one percent in the first three months of the year. A number of economists have forecast annualized gross domestic product growth to soar to 3.5 percent or higher. Growth at that level would further justify the Federal Reserve’s ongoing tapering of its extraordinary stimulus program. Furthermore, given that Friday’s numbers were better than expected, investors should be confident in the direction of the recovery of the labor market.

After the Labor Department’s report released, the White House issued its own summary. “Job growth exceeded 200,000 for the fourth straight month in May, and businesses have now added over a million jobs so far this year,” said President Barack Obama. “This month’s report continued the trend of steady job growth. While the consistent pace of job gains means the economy has come a long way in recovering from the Great Recession, the President believes that more can and should be done to strengthen economic growth and expand economic opportunity. Continuing to press ahead using his executive authority wherever possible, the President will hold events next week focused on ways to take action to improve college affordability and support working families.” Undoubtedly, job creation and the progress toward economic recovery will play at least a minor role in November’s congressional midterm elections.

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