Credence Independent Advisors: US unemployment rate falls to lowest level since 2008

The US unemployment rate fell to its lowest level since 2008 on Friday, in a move hailed as a sign of progress by economists despite 9 million people remaining out of work.

The Bureau of Labor Statistics (BLS) said that the unemployment rate fell to 5.8%, as employers added 214,000 jobs in October. The average monthly gain in the past year was 222,000. The industries that added the most jobs were “food services and drinking places, retail trade, and health care” the BLS said.

In its report, the BLS said that the number of unemployed has fallen by 1.2 million this year and the number of long-term unemployed has fallen by 1.1 million.

Long-term unemployment is a persistent problem in the US that has vexed even top economists. “There is debate about why long-term unemployment remains so high,” Federal Reserve chair Janet Yellen said in a speech in April.

The October jobs report says 2.9 million Americans have been without jobs for 27 weeks or more, which accounts for 32% of all the unemployed people in the country.

Justin Wolfers, a fellow at the Peterson Institute for international economics, called the jobs numbers “a great report” and publicly hailed one of the BLS’s data points, the household survey, which suggested that 683,000 people found new jobs in October.

Others were sceptical of the household survey. “These data, remember, are much less reliable than the payroll numbers, and can’t be taken seriously month-to-month,” wrote Ian Shepherdson of Pantheon Macroeconomics.

Others warned about embracing too much optimism.

“While this is a sign that the economy is slowly moving in the right direction, if you look below the headline numbers, it’s obvious that today’s labor market is still far from normal,” the Economic Policy Institute said. “The economy may be growing, but not enough for workers to feel the effects in their paychecks.”

The National Women’s Law Center, similarly, objected that most of the gains were jobs gains were in low-paying minimum-wage jobs.

“Although job growth continued last month, it’s troubling that half of the 214,000 jobs added were low-wage. The largest job gains were in the restaurant industry, where most of the workforce relies on tips—and the federal minimum cash wage is just $2.13 an hour. Finding a job that pays poverty-level wages doesn’t feel like a recovery,” the NWLC said.

Peter Morici, an outspoken professor at the Robert H Smith School of Business at the University of Maryland, who has been critical of the Obama administration’s jobs policies, put his objection vividly: “One in six men between ages 25 and 64 – too old for college and too young to retire – are jobless. Many are simply sitting at home watching ESPN and often relying on friends and relatives for support.”

There are indicators that the economic recovery is slower than many would like.

While the so-called topline numbers – the number of jobs added and the unemployment rate–- are often cited in discussions, they have their flaws. The jobless rate, for instance, has been dropping in part because it only measures people who have been actively looking for jobs; when people stop looking; they are no longer counted as “unemployed” according to the government figures. In addition, the number of jobs added is frequently revised, often by large margin; the BLS reserves a margin of error of 100,000 jobs.

There are several other statistics that economists look for to gauge the health of the labor market.

One is the number of people who are “part-time for economic reasons,” which the BLS classifies as those “who would have preferred full-time employment, [and] were working part-time because their hours had been cut back or because they were unable to find a full-time job.” There are 7 million Americans in that category.

Another measure is “discouraged workers” who have given up looking for jobs because they believe there are none available. There are 770,000 Americans who fit that description – essentially unchanged from the same time last year.

One of these telling statistics is the “U-6 unemployment rate,” a more expansive measure that counts the “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force.” That means all people who are unemployed as well as those who have taken jobs they don’t want out of financial desperation.

That U-6 number remains elevated, suggesting that 11.5% of the country is unemployed – in contrast to the milder 5.8% top-line unemployment rate. The U-6 rate has dropped in October, however, from 11.8% in September.

Another measure that economists put emphasis on is the “labor force participation rate,” which measures how many Americans are working as a percentage of the overall labor force. That percentage, a very low 62.8%, is nearly the lowest since the recession of 1978.

Joblessness also shows stark differences by ethnic group. The black unemployment rate, at 10.9%, is more than double the white unemployment rate of 4.8%.

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