Jobless Rate Falls to 5-Year Low, Helped By Discouraged Workers
The headline numbers from the Department of Labor’s April Employment Situation Report, released Friday, are staggering, beating economists’ expectations handily. Last month, the U.S. economy created 288,000 jobs, pushing the unemployment rate down 0.4 percentage points to 6.3 percent, the lowest in more than five years. The last time U.S. employers added more jobs was in January 2012.
Last month’s “gains were widespread, led by job growth in professional and business services, retail trade, food services and drinking places, and construction,” the report said. Additionally, the Labor Department’s economists upwardly revised March’s job growth from 192,000 to 203,000 — an important improvement, given how much anxiety the first quarter’s anemic gross domestic product growth spawned. With that adjustment, the economy has added an average of about 214,000 positions per month so far in 2014.
Economists had expected U.S. employers to add just 215,000 new jobs and for the unemployment rate to drop to just 6.6 percent. More specifically, the private sector added 273,000 net new jobs in April, while the government added 15,000. With warm weather returning, the construction sector regained momentum, acting as one of the largest job creators last month and adding 32,000 new positions that were concentrated in heavy and civil engineering and residential building.
Over the past year, that industry has hired 189,000 workers, the majority of which were added in the past six months. The professional and business services industry was a strong point, as well, adding 75,000 net jobs, while retailers and bars and restaurants each expanded payrolls by more than 30,000 jobs; the healthcare industry gained 19,000 positions.
“The really good news in this report is we’re learning that the economy can create jobs without stoking the inflationary engine,” tweeted Justin Wolfers, a senior fellow at the Brookings Institution.
From one perspective, the April jobs report says a great deal about the strength of the U.S. economy. “This was an exceptionally strong report, and it suggests that the labor market has more than recuperated from the weather-induced slumber earlier this year,” TD Securities’ Millan Mulraine told The Washington Post. Of course, other economists were quick to point out that April’s weighty jobs growth was largely result of the labor market catching up from the winter slowdown, which kept hiring numbers extremely low in December, weak in February, and undeniably sluggish in March.
Still, “that is only one part of the story,” said Conference Board chief economist Bart van Ark. “Indeed, the more important part is that the economy has been gathering strength for some time.” His view corresponds with what many economists said after first-quarter GDP data was released – that even at its anemic rate, the nature of the quarter’s growth suggested underlying strength in the economy.
At the headline level, the Labor Department’s jobs report suggested growing strength in the economy, as well. April’s 0.4 percentage point drop in the unemployment rate represented a 733,000-person reduction in the number of unemployed Americans included in the labor force. Over the past year, the jobless rate and the number of unemployed declined by 1.2 percentage points and 1.9 million, respectively. These reductions follow nearly four months of little improvement.
The number of long-term unemployed Americans — those without employment for 27 weeks or more — decreased by 287,000 in April to 3.5 million, representing nearly one-third of America’s jobless. But “long-term unemployment remains a serious problem and is the principal reason overall unemployment remains high” at 6.7 percent, according to the Department of Labor’s report. The reason that short-term unemployment is dropping and the number of longer-term unemployed Americans remains constant is because the new jobs created go to those whose jobs skills are more relevant.
“Those idle longer than six months have a difficult time obtaining jobs, despite a growing number of openings, because skills and marketability have eroded,” noted Mark Zandi, chief economist of Moody’s Analytics, in a recent research paper. That reality leaves long-term unemployed in a bubble and allows economists to describe the labor market as tight because employers see a limited number of desirable candidates for the jobs that are available. The perceived lack of workers is only exacerbated by the fact that large numbers of Americans who have been jobless for longer than six months have dropped out of the labor force.
The growth was not enough for Speaker of the House John Boehner. “Earlier this week, we learned that economic growth largely stalled at the start of the year,” he said in a statement released just after the jobs report, referring to the meager 0.1 percent the United States GDP grew in the first three months of this year. “And while it’s welcome news that more of our friends and neighbors found work in the past month, this report also indicates more than 800,000 Americans left the workforce last month, which is troubling. We need more robust economic growth if we’re going to help the millions who remain unemployed get back on their feet.”
He then made a campaign pitch: “House Republicans have made the people’s priorities our priorities, passing jobs bill after jobs bill to expand opportunity and economic security for middle-class families. President Obama ought to call on his Democratic-led Senate to take up the stacks of House-passed jobs measures so we can get this economy moving again.”
Where Boehner sees doom and gloom, some economists see only another statistic. The nature of the Labor Department’s report lends itself to being distorted by what is called statistical noise because of what the report attempts to accomplish in terms of explaining labor market conditions. The Labor Department relies, in part, on a mid-month survey of households that tabulates the number of workers receiving pay for the week in question. If a snowstorm or another issue occurs during that week, the overall results can be disproportionately impacted.
In general, the noise associated with month-to-month job growth can, and does, obscure underlying trends, even when the economy is clearly accelerating or decelerating. It is difficult to succinctly summarize the health of the country’s $17 trillion economy of 300 million people.
It must be remembered that the falling unemployment rate hides some dismal realities – the labor situation is not improving for all Americans. The unemployment rate plunged to its lowest level since 2008 partly due to discouraged workers giving up their search and leaving the workforce. The headline unemployment rate only counts those individuals who are actively searching for work. Last month, the civilian labor force shrank by 806,000 following March’s increase of 503,000. That left the labor force participation rate 0.4 percentage points lower, at 62.8 percent. As the Labor Department noted, that measure has “shown no clear trend in recent months and currently is the same as it was this past October.”
Similarly, the employment-to-population ratio has remained largely unchanged over the past 12 months, and it showed no change in April, coming in at 58.9 percent. “I would actually say that this big drop in the unemployment rate is not consistent with a really robust labor market because that labor force participation rate did not rise, and the employment-to-population ratio is shockingly low,” George Washington University economics professor Tara Sinclair told The Washington Post.
However, a broader measure of unemployment — the U-6 rate, which includes discouraged workers and involuntary part-time workers — has been falling, if slowly. In April, that measure of joblessness came in at 12.3 percent, down from the 13.4 percent recorded in April 2013. Alongside that downtick, the number of people who lost their jobs and people who completed temporary jobs decreased to 5.2 million.
But the number of involuntary part-time workers — those who are working part time because their hours have been reduced or because full-time employment was unavailable — was little changed, at 7.5 million. The fact that the number of long-term unemployed and underemployed Americans remains high has served as reasons for Federal Reserve Chair Janet Yellen to keep the central bank’s benchmark short-term interest rate near zero, where it has been since December 2008.
As more proof that it will take the United States years to fill in the job gap left by the recession, the Labor Department’s April numbers show that were 783,000 discouraged workers in April, a figure little changed from a year earlier.
Still, the increase in last month’s hiring does help validate the Federal Reserve’s recent decision to taper its monthly bond buying by a further $10 billion, dropping its monetary stimulus to $45 billion per month. That decrease represented the fourth consecutive $10 billion reduction and puts the the bond-buying program, which was conceived in the aftermath of the financial crisis and recession, on track to conclude as soon as October.
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