Friday’s employment report was a perfect example of how the U.S. economy remains in the transition from recession to progression. Growth both nationally and locally has come begrudgingly and with little momentum.
The Department of Labor reported U.S. payrolls rose by 169,000 in August and the nation’s unemployment rate fell to 7.3 percent. On the surface, the numbers were neither encouraging nor disappointing. However, when you dig a little deeper, there is reason for concern.
For one thing, the DOL revised lower payroll numbers for June and July by a combined 74,000 jobs. July, in particular, fell sharply from the original reading of an increase of 162,000 jobs to just 104,000.
And, the drop in the jobless rate was the result of fewer people looking for work. The labor participation rate fell to 63.2 percent, the lowest reading since July 1978, as 312,000 stopped looking for work.
“Payrolls remain on the order of about 5 million below where they should be. In addition, an unusually high number of productive, potential workers are not even looking for jobs right now. In economist-speak, the labor force participation rate is quite low, and I should note that this is true even after accounting for structural factors such as the aging of baby boomers and other long-run trends that are holding down the rate,” said Charles Evans, president of the Federal Reserve Bank of Chicago, in a speech delivered Friday morning before the release of the employment data.
The slowdown is evident here in San Diego, as well.
“Year-over-year job growth has slowed in recent months, compared to earlier this year,” said San Diego State University professor Alan Gin in his most recent reading of San Diego’s leading economic indicators.
“For July, wage and salary employment was up only 19,900, compared to the same month in 2012. At the beginning of 2013, year-over-year gains regularly topped 30,000. The expiration of the payroll tax cut and the sequester are a couple of factors that could be responsible for the slowing growth,” Gin said.
San Diego County’s unemployment rate rose to 7.8 percent in July, compared with 7.4 percent a month earlier, but still well below the 9.5 percent rate in 2012.
The August employment report comes at a critical time: just a couple of weeks before the next meeting of the Federal Reserve’s open market committee meeting. Expectation is that the group will lay the groundwork for tapering -- the process of reducing the massive bond-buying program to purchase $85 billion a month in mortgage-backed and Treasury securities, a process to keep interest rates low and stimulate corporate spending.
The consensus among market analysts is for a policy shift by the Fed with tapering to begin as early as this month or in the fourth quarter.
However, not everyone agrees.
“It is not yet time to remove accommodation. I expect our policies to remain highly accommodative for some time to come. My colleagues and I have laid out certain markers that should help gauge the timing of when we will begin to change the stance of policy. When those markers are reached, we will carefully weigh incoming data to determine if we can improve economic activity and bring inflation in at our 2 percent objective,” Evans said.