Two weeks ago the U.S. Bureau of Labor Statistics reported that the nation’s unemployment rate for September fell from 8.1 to 7.8 percent, the lowest measure since January 2009.
Unlike the decline experienced in August, this month’s report did not result from discouraged workers dropping out of the labor force. Total nonfarm payroll jobs increased by 114,000. Still, otherwise reputable and prominent figures are in disbelief of a legitimately recovering economy and labor market.
Such a response, one part knee-jerk reaction two parts thoughtlessness, brings squarely into question one’s understanding of where the jobs numbers come from, how they are calculated, what they represent and what skews their connection with underlying economic progress.
Let me focus on the last point.
Any astute observer of the recovery would recognize that a continuously decreasing unemployment rate fits squarely in line with steady economic improvement as conveyed by other major indicators such as jobless claims, gross private investment, housing starts and consumer confidence.
But what is most important in understanding the jobless rate is recognizing that it is a lagging indicator. Economic conditions and events of months past are translated into changes in this highly tracked benchmark criterion. Think of it as confirmation of past performance.
This makes perfect sense. Given the high cost of searching for, hiring and training new employees, firms are reluctant to let workers go when economic struggle hits. Alternatively, firms battling tough economic times wait for realized confirmation of improving business conditions before hiring new workers.
The slow-to-fire, slow-to-hire feature of the labor market underlines a jobless rate that is, by its very nature, backward looking in effect. If the rate drops continuously, it serves as confirmation that significant improvements to economic and, therefore, employment status are well under way.
Job loss is a sensitive topic that carries with it numerous individual and societal costs; worker skill sets may deteriorate, negative worker traits may be inferred by potential employers, psychological burdens may arise and so on.
However, by focusing so much on this one indicator, many participants in this discussion have missed the actual upward underlying trend of economic progress.
The housing market, the auto market, private-sector investment are all improving and finally surmounting recession-low levels. The number of new privately owned housing starts reached 750,000 last month, the highest value since October of 2008.
Lightweight vehicle sales of cars and trucks were measured at 14.8 million in September, the highest value since April 2008. Gross private domestic investment stood at 2.04 trillion dollars after the second quarter of 2012, a measure that has increased almost every quarter since the beginning of 2009.
Yet another major lagging indicator is the Thompson Reuters/University of Michigan Consumer Confidence Index. This measure serves as a gauge for consumer expenditure and market behavior.
Since two-thirds of the economy is driven by household consumption, this metric is of particular interest during the current period of shortfall aggregate demand. Last week, the sentiment index increased to 83.1 surpassing economists’ expectations and reaching levels not seen since September 2007.
I realize that it may be in the interest of some to ignore or downplay the improving economic conditions. But, to slander the credibility of non-partisan institutions such as the Bureau of Labor Statistics who deploy major amounts of time, energy and resources to get things as right as possible is just wrong.
There will always be examples of issues domestically and abroad that could be improved, but the case for ever dire economic and labor conditions looks increasingly thin.
Dr. Nicholas J. Mangee is an assistant professor of economics at Armstrong Atlantic State University and can be reached at Nicholas.mangee@armstrong.edu.