By all accounts, the February jobs report released by the Department of Labor was a resounding success. According to Yahoo Finance, “Payrolls grew by 235,000, which was much more than the 200,000 expected. The unemployment rate dropped to 4.7% and wages rose 2.8% over last year.” This surely sets the stage for the Federal Reserve to raise the key interest rate higher.
However, the most important consideration of the jobs report was labor participation. As Yahoo further reports, “In February, the employment-to-population ratio rose to 60%, the highest since February 2009 and an indication that one of the most discouraging labor market trends of the last decade is starting to turn.” Of particular note is the labor participation of prime-age workers — between 25 and 54. That figure jumped to nearly 82%, the highest since 2011.
Logically, this should be a cause for celebration. President Donald Trump has yet to tweet about it at time of writing, but past tendencies indicates that he will. For Republicans and conservative voters, the jobs report is “yuge.” It suggests that the markets and the underlying economic engine are responding to the Trump administration’s message of lower regulations and an overall pro-business agenda.
Labor participation growth is certainly encouraging, as that was one of the primary criticisms of “Obamanomics” — yes, unemployment was down, but that didn’t include discouraged people who had given up. However, the latest jump in labor participation doesn’t mean what you think it means.
Economist Mike Moffatt writes that labor participation “is the percentage of working-age persons in an economy who: Are employed (or) Are unemployed but looking for a job.” The latter is the critical point — the jobs report includes those who don’t have jobs as “labor participation!”
That’s the kind of shenanigans that occur constantly in government. Sure, the economy can look great, so long as you include some figures, and exclude others. It’s also the reason why the Federal Reserve, should they go ahead with raising the key interest rate, would suffer serious consequences.
Bad economic policy doesn’t begin to cover it. The Federal Reserve is acting on the latest string of positive jobs report as if it told the true story of the economy. In reality, it’s not telling us much. By dumping in the employed and the unemployed together as labor participation, the data is intractably corrupted.
Analyses of economic trends should, with few exceptions, always involve similar metrics. For example, “young workers” may include those who recently graduated high school, and those who graduated college. It should not include those who just completed a graduate program such as law school or especially medical school. That’s an entirely different ballgame.
That doesn’t stop the government from lumping the employed and unemployed into the jobs report. You couldn’t pick two more dichotomous metrics. Yet here we are, again, lavishing over the same old bull.