As for the job market, good things are happening. The underlying trend of job gains is over 200,000 per month, a strong enough clip to nudge the jobless rate even lower than its current eight-year low of 4.9 percent. Although wage growth fell back a bit last month, the tight job market is providing workers with a bit more bargaining power. At 2.2 percent, average hourly wage growth is beating (very low) inflation, meaning paychecks have more buying power.
The job market is, however, not yet at full employment. The underemployment rate, at 9.7 percent, remains elevated by 6 million part-time workers who would rather be full-timers but still can’t find the work. According to my research, the underemployment rate needs to fall another point before you can call the job market really tight. And then it needs to stay there if we want to see the least advantaged workers get the boost they’ve long lacked.
Also, and this is really important: Even though the labor force participation rate is still depressed, it is maybe, hopefully, showing signs of life. The figure shows the decline in the labor force rate of 25- to 54-year-olds, a sample chosen to avoid confounding the analysis with retiring boomers. Since the Great Recession, the rate fell from around 83 percent down to around 81 percent or so. Over the six-plus years of economic expansion, the best you could say is “at least it didn’t fall further.”
My theory of the case — and more importantly, it’s a theory I share with Fed chair Janet Yellen — is that a strong labor market with better opportunities could pull some of the sideliners back into the game. One must resist making too much out of small changes in these jumpy data, but it is possible that this is what we’re seeing: As you can see in the recent data, the better job market is giving people a reason to come back in and see what they can find.
Okay, break’s over. Time to turn back to politics. Is this a situation you would want to turn over to politicians of the caliber on that debate stage last night? Have you heard one sensible thing said about economic policy that would lead you to believe they would have the sense to not screw this up?
True, I’m invoking the good question of how much sway presidents have on economies, which is a lot less than they’re generally given credit or blame for. But you can push that insight too far. It matters a great deal who they appoint in positions that directly affect fiscal policy. They appoint governors to the Federal Reserve. They set trade policy and deal with international competitors.
Most importantly, simply based on historical averages, it is likely that the next president will have to deal with a recession. As I said, many people are only now beginning to see a smidgen of the benefits of growth flowing their way. Unless the next president is smart and persuasive enough to get Congress to apply countercyclical policy to the next downturn, whatever gains folks have seen may be short-lived.
In fact, tying this all together, there’s a real irony here. Many in the electorate are mad about the inequality embedded in the economy in a way that means they’ve only recently seen some gains (and that’s an average result — there are places that are still facing depressed conditions). Their anger is fueling an anti-establishment backlash, lifting Trump’s prospects. Yet he’s an example of a someone to whom we shouldn’t give the keys to this improving labor market.
In that regard, one of the tragedies of the current election is wasted anger. People are justifiably angry about an economy in which reckless finance brought us the recession, got bailed out and recovered way before the rest of us. What’s more, their anger is politically motivating them, which is exactly what you would want to see if we hope to change course and self-correct. But too many are at risk of wasting their anger on candidates who can only foment more discontent and dysfunction.
I don’t know how to fix this fundamental problem. But I view today’s solid jobs report as a microcosm of its extremely high stakes.