The economy saw job growth turn negative, likely due to the recent string of hurricanes, with the loss of 33,000 jobs in the month of September, detailed a federal report Friday.
The labor market has improved greatly over the last two years following an irregularly slow economic recovery. Positive signs in recent years have sparked increased confidence, but there are still lingering concerns like wage growth. The Bureau of Labor Statistics found in its latest jobs report that the labor market decreased by 33,000 jobs.
“The unemployment rate declined to 4.2 percent in September, and total nonfarm payroll employment changed little,” the report detailed. “A sharp employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey.”
Employment growth in recent months has typically been closer to 200,000 new jobs. Former President Barack Obama started seeing the improvements towards the end of his presidency with his final year averaging 187,000 new jobs per month. President Donald Trump has made employment growth a primary focus since entering office earlier this year.
The slowdown in job growth is likely due in part to the considerably bad hurricane season. Hurricanes Harvey, Irma, and Maria caused immense damage across Texas, Florida, Puerto Rico, and other areas around the Gulf of Mexico. The damage covered a vast region which put local economies at a standstill. The rebuilding process is likely to create jobs in construction, but those areas will still take years to fully recover.
“I would say overall the labor market has continued to improve,” Bentley University Prof. David Gulley told InsideSources. “It’s made substantial improvements even over the last two years. The improvements seem to be slowing down a little bit as the country gets closer to its full employment level. It’s back up to stable capacity in terms of the economic growth rate.”
The economy has strengthened considerably since the last recession almost a decade ago. The Great Recession was caused by the subprime mortgage crisis and the financial crisis of 2007. The increased demand for labor has even started to pull people back into the labor market who have previously fallen out. But there are still issues that are persisting.
“There’s been a number of metrics that the labor market is looking good,” Gulley said. “But for some other metrics, they aren’t looking bad, but they aren’t looking as good as they have been, or maybe as good as they could be. Wage growth has been very modest, especially compared to pre-crisis levels. And that could be correlated with relatively low productivity growth.”
Average wages increased by 12 cents and now sit at $26.55 for the month of September. Wages in recent years have shown slow growth despite the positive trends. Employees typically see their wages rise as the labor market improves and there are less available people out of work. That trend hasn’t happened this time.
“Things have improved a lot since 2009 and 2010,” Jerry Marschke, a labor economics professor at the University at Albany, told InsideSources. “The unemployment rate is very low, even historically it’s very low. I would say there are two big problems. One big problem is stagnant wages, and that’s been a problem actually for over a decade, since the recession especially. The other problem I would say is the low labor force participation rates, especially among older, but still prime age, males.”
The labor force participation rate tracks the number of employed and those actively seeking work as a percentage of the total population. It currently sits at 63.1 percent. The unemployment rate, in contrast, doesn’t track those who have fallen out of the labor market due to long-term joblessness. A large population of retirees and student adults can be blamed for much of the lower rate. The employment-to-population ratio for prime-age adults is approaching where it was before the recession.
“The labor market is really at full employment,” Drexel University Prof. Paul Harrington told InsideSources. “When you take a look at those numbers you see we got about 6.2 million vacant jobs, it’s a very large number, and about 6.9 million officially unemployed workers. So the unemployed-vacancy ratio now is the lowest it’s been since we began measuring this data.”
Harrington adds that full employment, in this case, is not just the low unemployment rate. He notes that there are enough available jobs for everyone who is classified as unemployed. The economy has basically eliminated job loss due to downturns in the business cycle known as cyclical unemployment. But the people who are still out of work likely indicate issues in what is known as structural unemployment.
“We’ve eliminated basically all of the cyclical unemployment in the American economy,” Harrington said. “Why do I say we’re at full employment? Because the ratio of available workers to job vacancies is basically one to one. So even if I accelerate job growth I still have another type of unemployment that’s not cyclical in nature. This kind of unemployment is called structural unemployment.”
Harrington adds that there are many issues that could cause structural unemployment. Some likely factors would be a mismatch of the skills these open jobs require and the skill sets that are available. The mismatch occurs because of a lack of highly skilled workers like in computer science and engineering related fields, and people who lack basic skills like reading, writing, and math. Unemployed people also might not live where jobs are available.
“If you’re an employer now, one of the problems you have, depending on what industry you’re in, are labor supply problems,” Harrington said. “Where we’re getting job growth is really at the upper end of the market, and those are professional and technical skills.”
Harrington adds it can be difficult to determine where exactly the skill mismatches occur. But in an overall sense, it has occurred in academic skills, basic skills, and where job growth is happening. He notes that job growth is occurring in high-skilled industries like professional and technical services, the computer sciences, scientific research, engineering service firms, and certain types of healthcare sectors.
“You are actually getting upper wage pressure, but where that pressure comes from is in these very high-end occupations,” Harrington said. “It’s in engineering, computer science, some of the health occupations, where it’s hard to get labor supply because of the education and training requirements and literacy requirements are very rigorous.”
The Gross Domestic Product (GDP) is another indicator that has looked promising. It tracks the total dollar value of all goods and services produced over a specific time period. The Bureau of Economic Analysis (BEA) estimates that economic growth increased at an annual rate of 3.1 percent in the second quarter of this year.
“What it means is that this little bit better GDP growth over the last seven years has really been able to beat down that extraordinary unemployment we had,” Harrington said. “It’s been a long and slow crawl back, but the economy has really reached that bullet-pointed level. That’s been very good, but it hasn’t touched everybody.”
Healthcare saw the most significant increase of new jobs at 23,000, followed by transportation and warehousing, financial activities, and professional and business services. The jobs report does not include farm workers, private household employees, or nonprofits.
