For those who are working or looking for work it is generally good to have some sense of how the labor market is performing. Each month a report comes out that highlights the unemployment rate, along with the number of jobs created. The report for September came out last Friday, and I’ll try to interpret some of the key figures.
The first number that is typically highlighted is the unemployment rate, which dropped to 5.9 percent from 6.1 percent the previous month. To put that number in context, 5 percent would be considered close to normal, and during the depths of the recent recession unemployment peaked around 10 percent.
These are national figures, and there are wide variations by states. For example in North Dakota the unemployment rate in August was 2.8 percent, while in California it was 7.4 percent. In Los Angeles County the rate was 8.1percent, a sizable drop from the 9.9 percent figure in the prior year.
The next number that people tend to focus on is the number of jobs created during the month. For September the number of jobs created was 248,000, which is a little better than the average for 2014, which has been 227,000. Because of population growth our economy needs to add about 100,000 jobs per month to keep the unemployment rate stable.
If job growth continues in the 200,000 range-per month the unemployment rate should continue to gradually decline. It should be noted that in previous recoveries job growth would frequently be over 300,000 per month. This helps to explain why economic growth has been rather sluggish in recent years.
Another piece of data from the employment report is average wages. Salary growth has been consistently increasing at about 2 percent on an annual basis. This is a relatively low figure, and implies there is still significant slack in the labor market, as employers have not had to increase wages much. If the unemployment rate continues to drop, would expect salary growth to gradually increase.
There is one additional report that is increasingly being highlighted, and that involves the percent of the population that is working. This number has declined in recent years, which is quite unusual during a period of employment growth. This implies that many people have become discouraged, and have left the labor force.
Another factor influencing the percent of people working is demographics. Our population is aging, and large numbers of the baby boom population are starting to retire. Also, more young people are in college, and a smaller percentage of teenagers hold part time jobs compared to the past, which also reduces the percent of the population that is working.
However, if you look at people in the prime working age population of 25 to 54, there has been some drop in the proportion of those people working. This implies that the decline in the labor force is both a combination of demographics and discouraged workers. Also, an easing of standards to qualify for disability over time has allowed more people to leave the labor force, especially when their job prospects are poor.
I think the best way to summarize the state of the labor market is that it is still weaker than normal, but has significantly improved in recent years. This is true for both the country, as a whole, and also in our area. The Los Angeles region tends to follow national trends, though we frequently have deeper recessions and stronger recoveries.
Employment trends have been positive, and I would expect that to gradually continue. This should lead to a lower unemployment rate, continued job growth, and eventually better wage gains. Of course not all segments of the labor force will benefit equally, as those with limited skills may be able to find work, but not at a very good pay rate.
