By Ben Casselman
FiveThirtyEight, January 6, 20167 —
On Feb. 6, 2009, the Bureau of Labor Statistics released the first jobs report of Barack Obama’s presidency. It was a doozy. Employers had slashed 598,000 jobs in January, the report said. (Subsequent revisions made the month look even worse: a loss of 791,000 jobs.) The unemployment rate jumped to 7.6 percent.
What a difference eight years makes. On Friday, the BLS released the final jobs report of the Obama era, covering December,1 and while it wasn’t a knockout – the unemployment rate rose slightly, and job growth fell a bit short of economists’ expectations – it was a world removed from the dark days of 2009. U.S. employers added 156,000 jobs, the labor force grew and the unemployment rate remained comfortably under 5 percent. December marked the 75th consecutive month of job growth, a record.
Most significantly, wage growth accelerated sharply. Average earnings rose 10 cents an hour in December, and were up 2.9 percent from a year earlier, the fastest growth of the seven-and-a-half-year-old economic recovery. The increase is the latest sign that the improving economy is at last delivering concrete gains for American workers.
To be clear, Obama deserves at most a small part of the credit for the recent progress. The administration’s policies during the recession, including the stimulus package and the bailout of the auto manufacturers, probably helped dampen the severity of the crisis, although economists disagree by how much. Presidents can cause recessions and help to dig out from them, but generally have little impact on the month-to-month state of the economy. Obama’s true economic legacy won’t be clear for years.
Still, after a presidential campaign full of economic gloom, it’s important to remember how far the job market has come in recent years. During its 75-month streak of job growth, the U.S. has added nearly 15 million jobs, an average of nearly 200,000 per month. Manufacturers have added more than 700,000 jobs during that stretch, though the sector employs nearly 300,000 fewer people than when Obama took office. The unemployment rate has fallen to 4.7 percent from a peak of 10 percent – and yes, unemployment is way down even after accounting for people who have left the labor force. Numerous challenges remain, many of them predating both the recession and Obama. But Donald Trump is inheriting a job market that is fundamentally healthy. That’s been a long time coming.
Here are a few more observations from Friday’s report:
A solid year: The U.S. added 2.2 million jobs in 2016, down from 2.7 million in 2015 and 3 million in 2014. But the slowing pace of job growth isn’t necessarily a cause for concern. There are far fewer people looking for jobs today than there were two years ago; it’s natural that job growth would slow as the recovery matures. And hiring is hardly grinding to a halt: December’s gain of 156,000 jobs was a mild disappointment, but the BLS also revised up its estimate of November job growth by a whopping 26,000 jobs, to 204,000. (October’s job growth was revised down by a more modest 7,000 jobs.)
Higher wages bring more workers: One of the central stories of the recession and recovery has been the steep drop in the share of adults who are working or actively looking for work. The decline in the so-called labor force participation rate was driven partly by demographic forces – primarily the retirement of the baby boom generation – but also by the weak economy, which led millions of Americans to quit looking for work.
Now, however, improving job prospects and rising wages may be helping to reverse that trend. The labor force grew by 184,000 people in December. The participation rate has bounced around a lot recently, but there has been an unmistakable rebound from its low point in the autumn of 2015. In a departure from recent trends, most of the December growth was due to people entering the labor force to look for work, not to start jobs; that could be a fluke, but it could also be a sign that accelerating wage growth is leading people to restart their job searches.
How will the Fed react? One downside of accelerating wage growth: It could spur fears of faster inflation. The Federal Reserve last month hiked interest rates for the first time in a year, and policymakers indicated they expect to raise rates three more times this year. The Fed is trying to strike a delicate balance: raise rates fast enough to keep inflation in check, but not so fast as to choke off the recovery just when it is reaching most Americans. One month of data isn’t likely to sway the Fed much in either direction, but if wage growth keeps accelerating, the Fed may feel forced to respond more aggressively.
Manufacturing gains: U.S. manufacturers added 17,000 jobs in December, the first monthly gain since July and the biggest since January. Trump has put manufacturing front and center in his economic agenda, and since the election he has repeatedly railed against companies that plan to outsource jobs to other countries. It is unlikely that Trump’s actions deserve much credit for December’s gains, but it’s a safe bet that the manufacturing figures will get extra attention going forward.
Other industries were a mixed bag. The health care sector gained more than 63,000 jobs, capping a year in which it added more than half a million jobs. But retailers added a disappointing 6,000 jobs and the oil industry continued to lay off workers.
Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.
