You may have noticed that there’s this election that’s about a month away. You also may have noticed that the monthly jobs report came out Friday morning. What do these two have to do with each other?  At this point, every economic hiccup becomes campaign fodder. That’s not to say that this has been … um … the most fact-based or policy-oriented campaign season in recent memory. To the contrary, at times like this, such data get twisted every which way. So let’s take this opportunity to try to do two things. First, take an objective look at what’s up and what’s down in the job market, and two, muse a bit about the effect of these facts on the election.  [U.S. adds 156,000 jobs in September; unemployment rate rises to 5 percent]  On net, employers are adding jobs at a solid clip, nudging the job market toward full employment. That’s having two important, positive effects: It’s pulling more people off the sidelines and back into the labor force, and it’s boosting the pace of wage growth. There are, however, pockets of weakness in some key sectors.  — Employment growth was up 156,000 last month, but the monthly data are noisy, and you’ve got to smooth out the bips and bops. Over the past three months, the average monthly gain is 192,000, a pace that’s fast enough to move us toward full employment (as you’ll see, however, we’re not there yet).  — The unemployment rate ticked up slightly, from 4.9 percent to 5 percent. Actually, it rose from 4.92 percent to 4.96 percent, an increase that’s statistically indistinguishable from no change at all.  — Moreover, as noted above, that slight increase in the jobless rate was largely due to over 400,000 people coming into the labor force last month, a positive development. A good way to look at this issue of people who should be in the job market but aren’t is to look at the share of “prime-age” workers with jobs. This metric tanked in the downturn but has made back about two-thirds’s of its loss (see here for more detail on the long-term, negative trend in employment rates). Over the past year, it is up 0.7 percentage points. If this trend persists it will be a real positive, as we need to chip away at this problem of unemployment among prime-age folks.  Source: Bureau of Labor Statistics  — One of my central themes is that as the job market tightens up, workers who are too often left behind get more bargaining clout. If your income depends on your paycheck, as opposed to … oh, I dunno … tax avoidance, full employment is your best friend. The figure looks at the recent trend in nominal pay for blue-collar manufacturing workers and non-managers in services — basically, middle-class workers. It jumps around some, but the trend shows clear acceleration.  Source: Bureau of Labor Statistics  — Since inflation has been low, real wage growth — the actual buying power of your paycheck — has grown more quickly over this business cycle than in previous ones (see Figure 3 here).  [Middle class incomes had their fastest growth on record last year]  — There are still about 6 million part-timers who want full-time work. That’s about 4 percent of employment as opposed to 3 percent before the Great Recession. True, it’s well off its peak of more than 6 percent, but this dynamic is keeping the underemployment rate stuck at 9.7 percent, at least a point above where it should be at full employment.  — Slow global growth and the strong U.S. dollar continue to weigh on our manufacturers. Factory employment fell 13,000 last month and is down 58,000 so far this year. Since 2015, job growth in the factory sector has been flat, after rising more than 300,000 jobs from 2013-2014.  — Low energy prices have held down inflation and thus contributed to the wage result just noted, but they’ve also meant layoffs in oil and other extraction sectors.  — While hourly wage growth has ticked up some, average weekly hours have not, and that means weekly earnings are only growing about 2 percent for the middle-wage group noted above. That’s still beating inflation, which is only up about 1 percent, but this also signals the absence of full employment.  Putting it all together, the upsides solidly outpace the downsides. On net, there simply is no case that the job market, or for that matter, the U.S. economy, is in terrible shape. That’s pure, misleading spin in the interest of trashing politicians you oppose.  [International Monetary Fund slashes prospect for U.S. growth]  Nor is everything great. Given the political salience of international trade in this election, what’s happening in the factory sector is important. I should note that the stronger dollar is far more a function of the fact that we’re growing faster than other advanced economies and the Federal Reserve’s plans to raise interest rates than it is evidence of currency manipulation. Still, as both presidential candidates have stressed, we should still worry about currency manipulation. I take my umbrella even when the sun’s out.  And I especially want to be careful not to overstate any recent wage gains. First, a big part of these recent gains comes from unusually low inflation. Second, there’s that average hours problem I just noted. If prices normalize before nominal wage growth and hours pick up, whatever gains less advantaged workers are finally seeing will be short-lived.  Like I said, this isn’t much of a policy-driven election. But if we want to boost the labor market upsides and shrink the downsides, we’re going to need policies that keep pulling workers in off the sidelines, like infrastructure investments. That means we’ll need fiscal budgets that support these investments, leaving no room for trickle-down tax cuts. We’re going to need higher minimum wages to support the wage floor for those whose bargaining power remains weak even at low unemployment. We’re going to need a manufacturing agenda that helps our exporters compete, and an energy agenda that recognizes the economic and environmental potential of alternatives to fossil fuels. We’ll need the Fed to hold off on tapping the brakes.  Yes, I’m an econo-policy nerd. But that’s the debate I’d like to tune into on Sunday night, and I’ll bet I’m not the only one who feels that way.
A solid jobs report shows we're closing in on full employment. But pockets of weakness remain, and we need to hear what the candidates plan to do about them.