Signs of Life? Part 3

OK, let’s end the week with one last optimistic hurrah. Today’s employment report was pretty good. That’s probably less enthusiasm than you will sense in the way others are reacting, but I put today’s numbers in a longer term context. In which case they aren’t bad, but they aren’t exactly terrific either.

The facts:

The economy added a total of 203,000 jobs in November. Growth was across the board, so we cannot argue that there was a peculiar one sector warp to the figures. The unemployment rate dropped to 7.0%, which puts it back roughly where it was at the end of 2008. This is clearly a good thing, but it has also taken an inordinately long time to get here. We ought not be too proud of the ineptitude that led to such a prolonged period of high unemployment. And, parenthetically, 7% is still too high: we have a way to go before we can claim to be fully recovered.

Meanwhile the number of people looking for work increased and helped bring the workforce participation level up slightly to 63%, from the prior month’s 62.8%. The return of government workers previously record as out of work because of the government shutdown may have skewed the figures somewhat, so we should be careful in drawing any long term conclusions.

Lastly the number of long term unemployed remains stuck at around 4.1 million, a shockingly high and depressing figure that often gets glossed over. Long term unemployment is usually associated with the atrophy of skills, immense financial disruption, and an increasing resistance by employers to offer work. After all, businesses often argue, there must be a perfectly good reason why someone has been unable to find work after so long a period.

So, while this report suggests the economy is sustaining its recent trend of decent performance, it doesn’t suggest a breakout to better or higher rates of growth. For this reason I see the Fed resisting calls to cut back on its unusual monetary policy. Indeed with Janet Yellen about to take over the helm I think that the end of the Fed’s support activities may well have to wait until late in the first quarter. By then we will know whether this week’s flood of buoyant news was the start of better times, or whether all those odd and one off circumstances that led to the flurry of strength, were merely masking prolonged stagnation.

I tend towards the latter thought. Let’s hope I am wrong.