What the Jobs Report Says about the Recovery

The October jobs report confirmed that the economic recovery continues, but is still battling to come back from the worst recession since the Great Depression. Employers added 214,000 jobs in October and the unemployment rate edged down to 5.8 percent, the lowest level since July 2008. Although the result was a bit shy of estimates for 230,000, with revisions to the two previous months, average monthly job creation this year stands at 229,000, which puts 2014 on pace to be the best year for both total and private sector job growth since 1999.

Some complain that the unemployment rate is not a comprehensive number, but the Labor Department has a separate reading called “U-6”, a broader unemployment rate, which includes involuntary part-time workers and those too discouraged to apply for jobs. U-6 declined to 11.5 percent in October, down 2.2 percent from a year ago and now at the lowest level since 2008. The progress is great, but is still high based on historical standards. During the last expansion, the rate hovered between 8 and 10 percent.

The same pattern can be seen with long-term unemployed, defined as those out of work for more than 26 weeks and still want a job. There are 2.916 million long-term unemployed workers, down from the recession high of 6.7 million and the lowest level since January 2009, but it is still a very high number.

Despite the acceleration in hiring, average hourly wages were little changed. Earnings were up by just 2 percent from a year ago, just 0.3 percent ahead of the annual rate of inflation. In fact, most of the wage gains during the economic recovery have benefited the wealthiest Americans. Average income grew 10 percent from 20-10 through 20-13 for the top one-tenth of earners; for everyone else, incomes stagnated or declined.

That divergence probably explains why exit polls from the mid-term elections showed extreme pessimism about the state of the economy. Seventy-one percent of voters said that economy is not so good or poor and only 33 percent of voters believe that the economy is getting better.

Capital Economics offered a note of potential relief about wages, saying that “There is plenty of evidence to suggest that, contrary to what the all employees measure of average hourly earnings is telling us, wage growth is accelerating. The employment cost index shows that third-quarter wages and salaries in the private sector increased at a 3 percent annualized rate. That faster growth is being driven by strong employment growth in the trade, transportation and utilities and the professional and business services sectors.”

Until those wage increases kick and until we see more broad-based gains in the still-weak parts of the labor market, Americans are unlikely to shake those pessimistic moods.

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