America’s relentless job machine

America’s job market seems like an island of calm in a turbulent world. Last week, the monthly release of U.S. employment figures was again impressive, bucking a decidedly weaker global growth trend. It’s a source of monthly surprise, and no doubt, inspiration for many who know full well that positive news here is powering 70% of the world’s top economy. In fact, any stumble on this front would ricochet around the world, given its recent relentless record, and softening elsewhere. Can anything stop the U.S. job juggernaut?

Its record is nothing if not impressive. There hasn’t been a negative month of employment stateside since September of 2010. And the 136,000 net new jobs in September 2019 were enough to drive the unemployment rate down to a 50-year low of 3.5%—well below what economists believe is sustainable.

Things are tight enough in the labour market that everyone seems to be benefiting. Unemployment rates are tanking for adult men, adult women, teenagers and by ethnicity. By level of education, well, the rates seem lower the less education one has—although all categories are at or near record lows. 

Long-term unemployment—a huge problem in the immediate aftermath of the Great Recession—also seems to be largely healed. It peaked at 6.8 million in April of 2010, two-to-three times higher than any previous cyclical high. But even from that impossible height, one that was called a permanent blemish on the current generation, the level is now close to cyclical lows—a remarkable achievement in a 10-year time span. Not surprisingly, the calculation of discouraged workers follows a very similar trend.

So, what about the “hidden unemployed?” A large part of the reason for plunging unemployment rates was the nasty fact that discouraged workers simply abandoned the labour market—it was so tough to find work for so many years that they simply dropped out of the count. They were no longer tallied as unemployed or discouraged, because they disappeared from the radar screen. But not totally—they are captured in the labour force participation rate.

Here’s where some of the most exciting U.S. labour market action is. Participation rates were in freefall for years following the recession, even as unemployment rates were improving. In fact, the unemployment rate was grossly understated for many of those years; when we factored in those who abandoned the labour force, the unemployment rate wasn’t nearly as low as the official number. Thankfully, that grim situation has reversed, and radically. Participation rates for young workers have risen smartly since early 2016, and are nearing 2008 levels. 

The same goes for 35- to 44-year-olds. Because of age and skill-atrophy, these were more vulnerable than younger cohorts. They still have a way to go to get back to 2008 peaks, but the sustained increase over the past three years has thankfully been quite aggressive. The same can be said for the even more vulnerable 45-to-54 age group, also in a sharp upswing that’s well into its fourth year. At the risk of repetition, even the pre-retirement 55-to-64 set is on a roll. Their participation didn’t really sink backward, but they have also been on the rise since early 2016, and are now beyond their previous peak.

Add it all up, and millions of workers have entered and re-entered the U.S. job market in the past four years. These are potent spenders, as their incomes have gone from around zero to whatever they are now making. They are likely the greatest source of increased wages and salaries south of the border, and are powering that 70% of the U.S. economy accounted for by consumer spending. Although employment is a lagging indicator of economic activity, this caboose is powering a pretty substantial train—and momentum can and will last for some time to come.

Don’t give up on the U.S. economy just yet. Its red-hot job machine is revving high, and yet there’s no sign of overheating. It’s a rare but refreshing piece of news in uncertain days.