The US needs new metrics to judge those job numbers

When the first employment report of the Trump presidency was released a month ago, the administration was quick to point to the strong growth in the number of jobs in the US in February: 235,000, in that initial estimate. It was a mistake to emphasise it, and the newest numbers show why.

It’s not just that the economy gained a mere 98,000 jobs in March, or that the Labor Department revised earlier months’ gains down by a combined 38,000 (though that apparent volatility alone is an argument for why government officials should be cautious in promoting any given month’s numbers).

More broadly, the US economy has arrived at a place where job gains, one of hundreds of data points released as part of the monthly report, are not really the best indicator of how things are going.

When the economy is at risk of falling into a recession or struggling to grow out of one, the change in the jobs numbers really is the best single number to understand the state of the economy. While it has a lot of month-to-month statistical variance, it is a fairly reliable indicator — especially if you average a few months together — of whether the economy is growing, contracting or stagnant.

But there are no signs now that the US is in recession or close to one. And once the economy is close to full employment, gains in jobs take on lesser importance. A few years ago, when the unemployment rate was at 7 or 8 or 10 per cent, the level of job gains was driven by employers’ confidence about the economic outlook.

Now, with the jobless rate at 4.5 per cent, the binding constraint is the number of available workers. Over the long run, employers can add jobs only as quickly as there are people to fill them. That is determined by a mix of demographic factors like birth rates and immigration levels, along with choices people make like whether to work, retire or stay home with a child.

It’s true that a more booming economy can tend to pull more people into the workforce. As President Donald Trump has often noted, there are indeed millions of people not in the labour force who might be in a more robust economy.

But we don’t know how many of those can be coaxed back to the workforce as the economy looks stronger, or at what pace. That being the case, it’s hard to know with any certainty what, in 2017 and beyond, would constitute a good level of job growth and what would be a poor one.

Instead of focusing on job growth numbers, which are poised to decelerate anyway thanks to the economy’s near-full-employment status, it would behove the Trump administration to focus on job market metrics that shed more light at this stage of the recovery and that speak directly to the president’s goal of getting more people back in the job market.

There are two particularly obvious ones.

Wage growth — more specifically, average hourly earnings for private-sector employees — seems poised to grow, and this would represent true progress for US workers. It rose 0.2 per cent in March, a solid reading, and is now up 2.7 per cent over the past year.

That’s pretty good given that inflation is low, but there’s plenty of room for it to rise further as employers get into bidding wars for talented workers.

In fact, if wage growth were stronger, you would expect it to have the positive effect of pulling people on the bench into the labour force. People who don’t see the value in working for $10 an hour might do so for $15.

Then there is the direct measure of how many Americans are working, the employment-to-population ratio. You can refine it to include only those who are between 25 and 54 to filter out students who aren’t working because they are in school and retirees who are on the golf course.

That number showed a bit of progress in March as well — it rose to 78.5 per cent from 78.3 per cent. But it remains below the 80.3 per cent recent high in 2007, and well below the 81.9 per cent record high in April 2000.

If the Trump administration sets its foremost goals as improvement in those numbers, wage gains and prime-age employment-to-population ratio, it will be focused on the issues that truly bedevil the US economy in 2017, and have a considerably better chance of success.

New York Times News Service