Not even the government shutdown was able to slow down the recovery. Not even close.
The economy, after all, was still able to add 304,000 jobs in January despite President Trump forcing so many federal workers and contractors to show up for work without getting paid. Which, to put things in perspective, is a number that would have been good in the first year of the recovery, let alone the tenth.
As always, though, this is something that needs context. The first thing to keep in mind is that this month’s blockbuster jobs number was accompanied by last month’s blockbuster jobs number being revised down to something much more ordinary. Indeed, while we had originally thought that the economy had added 312,000 jobs back in December, we now estimate that it was only 222,000. That means the overall trend, with average job growth coming in at 241,000 the last three months, hasn’t increased at all, but is still pretty much what we thought it was before.
But the strange thing is that while the shutdown didn’t seem to affect the job numbers very much, it did mess with the unemployment numbers a little. How is that? Well, the important thing to understand is that the jobs report is based on two different surveys. The first one asks businesses how many jobs they’ve either created or gotten rid of, and the second one asks households whether they have a job or not. Furloughed workers were counted as “employed” in the business survey as long as they were supposed to get back pay, but very reasonably might have said they were “unemployed” in the household one. The Bureau of Labor Statistics, for its part, says that these workers gave inconsistent answers about whether they were working, so this only artificially raised the unemployment rate from 3.9 to 4.0 percent instead of the much larger amount it might have been. The fact that the broader unemployment rate, which includes part-time workers who want full-time jobs, shot up from 7.6 to 8.1 percent gives us an idea of what that might have looked like.
All that said, the big picture is still the same as before: The economy is adding a lot more jobs than you’d expect when unemployment is this low. The idea being that the recovery should naturally slow down on its own once there aren’t a lot of people left who want jobs but don’t have them — which, by definition, is what a low unemployment rate should mean. Why hasn’t this happened, then? Two reasons. The first is that 4 percent unemployment isn’t what it used to be. Even after 10 years, the Great Recession still seems to be casting such a long shadow over the labor market that there are more people who want work than say they do. The fact that we’re able to keep adding 200,000-plus jobs a month is the most obvious sign of this, but so is how low wage growth is. If we really were running out of workers, employers would have to start offering a lot bigger raises to fight over the ones that were left. But that’s not really happening. And it might be a while before it does. That’s because even though the share of 25-to-54-year-olds, who, for the most part, should be too old to still be in school but too young to be retired, who are in fact working, just hit a post-recession high of 79.9 percent, which is still well below its all-time high of 81.9 percent from back during the tech bubble. Which is to say that there might be millions more hidden workers out there. We just might need to push unemployment down to 3.5 percent to find them.
The second reason that we’re adding so many jobs now is that we didn’t before. Whether it was ill-timed spending cuts or interest rate increases, we put so many hurdles in the recovery’s way that it never went as fast as it should have. So jobs that really “should” have been created in the past are being created now. That’s why, as Bloomberg’s Joseph Weisenthal points out, today’s surprisingly good growth shouldn’t be interpreted as a sign that the Federal Reserve needs to raise rates even further, but rather that it raised them too much in the past. The 304,000 jobs we just created, in other words, are showing us that there’s still a lot of slack left in the labor market, and telling the Fed that it should be more worried about this actual problem than a hypothetical inflation one.
And that’s the real message. Even though unemployment is low by historical standards, the recovery still has a long ways to go — if we’ll let it.