WASHINGTON – The little recovery that could just got a whole lot bigger.
The economy added 257,000 jobs in January, added a whopping 147,000 more in revisions to previous months, saw average hourly wages creep up 2.2 percent the past year and, best of all, the unemployment rate ticked up from 5.6 to 5.7 percent.
This last part was good news because it wasn’t about people losing their jobs, but rather about more people looking for them. Indeed, the labor force grew by 703,000 – yes, that’s not a misprint – after you include annual population adjustments. So joblessness went up because the economy is creating so many jobs that people have stopped giving up.
This is the best the economy’s been in 15 years. It’s added an average of 336,000 jobs a month the past three months, 291,000 the past six and 268,000 the past 12, which are the highest they’ve been since, yes, 2000. And no, wages still aren’t rising as much as we’d like, but they’re still rising more than inflation thanks to the big drop-off in oil prices.
That gives people more money to spend, which leads to more jobs, and, in turn, even more spending, and so on, and so on. It’s a virtuous cycle that might get even more so if young people start moving out of their parents’ basements – yes, they really are – and we have to start building again. There’s already a glimmer of that, as construction has added an average of 38,000 jobs the past three months.
Even better, though, is that this strong labor market might, just might, be sucking more people into it. That’s been the big question the last year or so: would discouraged workers come back now that things are looking up-ish, or would they stay on the sidelines? Well, after a record number of people went from not even looking for a job to having one, it looks like the recovery might finally be starting to reach the people who need it the most.
If, that is, we let it. Anytime there’s a good jobs report, there’s more pressure on the Fed to start raising rates sooner – especially if wages are rising. Now it’s true that average hourly earnings did increase 0.5 percent from the month before, but it’s important to remember that this is a very volatile series.
Wages are still only up 2.2 percent the past year, far below the 3.5 to 4 percent that’s consistent with the Federal Reserve’s 2 percent inflation target. The truth is we really don’t know how low unemployment can go before wages and inflation start picking up, so rather than assume they will now, we should wait until they do.
And that brings us to one final caveat. There’s no doubt the economy has accelerated, but has it really accelerated this much? If the revisions are right, we added 423,000 jobs in November alone. That would be the best single jobs month since 1997.
One reason this might be a bit of a mirage are the always exciting seasonal adjustments. The economy, you see, pretty predictably adds more jobs during some months more than others – such as warm weather helping construction – which is why the Bureau of Labor Statistics adjusts the raw numbers to tell us how they did compared to what we would expect at that time of year.
The problem is this is based on the previous few years worth of data, so if, for example, you have a polar vortex that crushes job growth one winter, the model will assume you’ll get one the next. And that would slightly inflate the jobs numbers now. That’s why it’s worth waiting until the summer, when this should reverse, before really deciding whether the economy is strong enough to take higher interest rates – and the stronger dollar, which might be the biggest threat to the recovery, that would imply.
Let’s not end on a downer, though. Whether or not the seasonal adjustments made this month look better than it really was, the economy is still adding a lot of jobs. In fact, it’s added at least 200,000 every month the past year, the longest streak since the mid-1980s. The best news, though, is that the Fed has said it will be “patient” until at least June before raising rates, and hopefully even longer than that.
The only thing that can stop the recovery is declaring mission accomplished.
