The Healing US Job Market and How We All Forgot About the Great Recession

 

The January jobs report suggests the nearly nine-year-old economic expansion remains plenty capable of generating solid job growth: 200,000 last month and an average of 192,000 over the past three months. More interesting, it provided fresh evidence that a tightening labor market is also capable of accelerating wage growth. The 0.3% monthly rise in average hourly earnings, following an upwardly-revised 0.4% in December, pushed the 12-month rate up to 2.9%, the highest reading in nearly eight years.

All good enough for Capitol Economics to declare, “the acceleration in average hourly earnings isn’t an outlier.” And JPMorgan thinks it “now looks like the tightness in labor markets is showing through to a gradual acceleration in wage growth.” Indeed, it seems the Wall Street consensus is that before long, we’ll start seeing month-after-month of 3-handle jobless rates. And hopefully even stronger wage growth.

Which is all very odd given all the concern in recent years about how trade, technology, Obamanomics, and even the severity of the Great Recession meant the US job market was structurally and perhaps permanently damaged. Now it seems a simpler, though less sexy, answer was more likely the correct one: The Great Recession and Financial Crisis were so severe, it was going to take a good long while for labor markets to heal. Lots of slack needed to be soaked up. Lots, even more than we thought.

But as the expansion has plodded along, that is just what seems to be happening. (Although more aggressive and novel monetary policy and pro-growth fiscal policy would have likely helped.) “While there are no doubt structural problems in the labor market and things we should do to address this, the extent to which these factors were either permanent or resistant to cyclical improvement was clearly exaggerated,” economist Adam Ozimek recently wrote in a must-read blog post.

Indeed, none of this is to say that all is well for workers, and so policymakers should sit on their hands. As Wells Fargo economist John Silvia argues in a note today:

Quarterly annualized GDP growth rates of 3 percent are not out of the question; however, sustained growth of 3 percent should largely be written off if the labor force participation rate does not improve. Structural issues continue to hold back growth in this metric.

One of those issues is the decline in geographic mobility. Faster productivity growth would also translate into faster earnings growth for workers. But as we tackle those issues, let’s not forget to draw the proper lessons from the last decade.

Published in Economics
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There are 9 comments.

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  1. James Gawron Inactive
    James Gawron
    @JamesGawron

    JimP,

    Sorry for not helping with the pure economic analysis but that’s your job anyway. Politically, this is all about the old American saying “S#@t rolls down hill.” If you are in the middle or below, you know damn well that only a rising economy can get things off your back. That’s the way you’ll get a raise. That’s the way you’ll find a better job. That’s the way you’ll be able to start your own business.

    Like a big fullback who has broken through and is on a 40-yard romp, Trump will go for the goal line, the 2018 mid-term, and the touchdown.

    Regards,

    Jim

    • #1
  2. Rodin Member
    Rodin
    @Rodin

    Someone (are you listing @jamespethokoukis ?) should examine how the social safety net, rent-control (and other anti-housing measures), and environmentalism are retarding geographic mobility.

    • #2
  3. Dan Hanson Thatcher
    Dan Hanson
    @DanHanson

    “Which is all very odd given all the concern in recent years about how trade, technology, Obamanomics, and even the severity of the Great Recession meant the US job market was structurally and perhaps permanently damaged.”

    Well, there hasn’t been much change in the slope of technology or trade, and the Great Recession happened.  So if there was an inflection point in the curve of growth yet those other factors never changed, whatever could have caused it?

    Oh yeah… Obamanomics.  Funny how everything changed once Obama was gone.  But it couldn’t be that, because Obama listened to all those Keynesian economists who are obviously correct.  So let’s maybe look under the mattress to see if maybe that hidden growth was lurking under there.  Or hey, maybe that 8 year old stimulus finally came through!

    Obama spent 8 years raising taxes and regulations and throwing stimulis money around while blaming everyone including George Bush for his lousy economic performance.  Then a new guy rides into town and starts undoing everything Obama did, and the economy takes off like a rocket.

    But I’m sure it was just a coincidence.  Trump just got lucky that the economy finally repaired the last of its Republican-created damage all on its own just as Obama left office.

    Obama is the unluckiest president ever.  Not only did he take power just as the Republicans created the terrible economy he would be forced to preside over,  but the economy fixed itself just as he left, allowing Donald Trump to take credit for everything.  There is no justice.

    • #3
  4. Front Seat Cat Member
    Front Seat Cat
    @FrontSeatCat

    With all the good economic news, investments, jobs, etc. why is the stock market tanking? Is this a correction or something driving it specifically? I know there’s no crystal ball, but given the atmosphere we’re currently in, I  am having mental flashes of words like derivatives, super computer buy and sell buttons, and Soros…..eesshhh

    • #4
  5. Manny Member
    Manny
    @Manny

    Maybe under Obama there was an expansion, but he held down growth with his burdensome policies that the economy never reached its potential.  The economic cycle was distorted, and now Trump administration can capitalize by lifting the burdens and letting the economy free.  That’s I think we’re what we’re seeing.

    • #5
  6. Seawriter Contributor
    Seawriter
    @Seawriter

    Front Seat Cat (View Comment):
    With all the good economic news, investments, jobs, etc. why is the stock market tanking? Is this a correction or something driving it specifically?

    Profit taking. A lot of people held off on selling stocks until January to get the new tax rates.

    • #6
  7. Dan Hanson Thatcher
    Dan Hanson
    @DanHanson

    That, and fears of imflation and rising interest rates, perhaps.

    Or perhaps we have no idea, because we are trying to understand the cause of an emergent property driven by the decisions of millions.  The movement of stock prices is pretty opaque to us,  which is why no one  has ever managed to figure out how predict them.  You can bet that over the long term the market will go up, or you might be able to study a single company and bet their stock price well enough to make a couple of percent over your commissions, but the mass movement of stock prices in the short and medium terms are a mystery to us no matter what your broker or technical analysis friend says.

    There is a good analogy here to weather.  We can predict that the average temperature will go up in summer,  and we can predict the weather in the 1-3 day range pretty well.  It’s that complex stuff in the middle we are hopeless with.

    • #7
  8. Ekosj Member
    Ekosj
    @Ekosj

    Front Seat Cat (View Comment):
    With all the good economic news, investments, jobs, etc. why is the stock market tanking? Is this a correction or something driving it specifically? I know there’s no crystal ball, but given the atmosphere we’re currently in, I am having mental flashes of words like derivatives, super computer buy and sell buttons, and Soros…..eesshhh

    @frontseatcat

    Capital markets 101.   The theoretical value/price of a stock is equal to the discounted present value of the future dividend cash flow.     Or perhaps the discounted present value of the future EBITDA.    Regardless.    It’s a discounted present value of some future cash flow.    OK.    How do you calculate discounted present value?

    Where CF is the future Cash Flow amount and, most importantly, “ i “ is the interest rate.   Notice that since “ i “ is in the denominator of this fraction, as “ i “ gets bigger DPV gets smaller.

    For years, the markets have gotten used to the idea that interest rates will be low for the foreseeable future.   The thinking was that the economy was too fragile and still needed support from the Fed in the form of artificially low interest rates.     Low rates,and the expectation of low rates in the future, became the new normal.    The last couple jobs reports have finally started to convince folks that the economy might finally be recovering something of its old self.    That’s great!!!   If that’s true, then maybe it doesn’t need those artificially low rates any more.    That causes the professional investors to recalibrate what “ i “ is in their stock market valuation models.    As they anticipate higher, more normal,  future interest rates, their Discounted Present Value calculations come up with a smaller stock price.   Suddenly the price that looked attractive yesterday now looks overvalued today and the Sell signal flashes.

    • #8
  9. Rodin Member
    Rodin
    @Rodin

    Ekosj (View Comment):
    That causes the professional investors to recalibrate what “ i “ is in their stock market valuation models.

    That, plus computer controlled portfolio management makes things turn south in one heck of a hurray.

    • #9
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