The final jobs report for 2023 was recently reported. The headlines look good but don’t tell the full story. This has been a common theme with many economic indicators, from the labor market to economic output.
With this being an election year, politicians are trying to milk every apparent “win” or “loss” for voter approval. With all the noise, we need an honest assessment of the economic ups and downs to help guide voters in November.
First, the payroll survey shows that were 216,000 net non-farm jobs added in December, which historically is rather robust. However, that’s not even half the story.
To examine how many productive private-sector jobs were added in December, we need to make some corrections. This includes subtracting 52,000 unproductive government jobs added in December as they are a burden on private-sector workers. Also, we need to subtract the 71,000 jobs that were revised down for October and November.
Doing so leaves just 95,000 productive non-farm jobs added in December, which is historically weak.
Couple these findings with even weaker results from the household survey showing 683,000 fewer people were employed compared with November 2023, and this report is even weaker.
While the unemployment rate was unchanged from the previous report at 3.7 percent, the labor force dropped by nearly 700,000 last month, meaning fewer people had work or were looking for work. The labor force participation rate dropped to 62.5 percent, the lowest since February 2023.
Contributing factors to the declining labor force participation are myriad and complex, not always correlated to the economy. But they are typically connected with expanded roles of government and other factors.
For example, the Economic Policy Innovation Center recently released a report highlighting how millions of people have dropped out of the labor force. The author notes “if the employment-to-population ratio were the same today as it was before the COVID-19 pandemic in February 2020, 2.6 million more people would be employed today.”
The report finds that the largest share of people leaving have been retirees since the pandemic. The next largest group is 20 to 24 years old, who have been living off the handouts since the pandemic or with their parents.
Interestingly, even with skyrocketing daycare costs, those without kids are a large share of those leaving the workforce. This makes some sense as maybe they are young and don’t have kids and have other means to survive, but this also is a conundrum because they’re reducing their long-term earnings potential.
But with recent minimum wage hikes by 22 states that no doubt will displace many low-skilled workers and the rise in dependency on government safety nets over the last few years, there’s likely to be more people out of the labor force for longer.
Speaking of distortion, average weekly earnings have been improving, but after adjusting for inflation, they are up just 0.4 percent over the last year.
While it’s promising to see real wages go up after years when it wasn’t, workers would feel much more relief if inflation were further slowed. But mischief in Congress and the Federal Reserve keeps that from happening.
Inflation soared due to the federal government’s deficit spending, mostly monetized by the Federal Reserve. This created a situation of too much money chasing too few goods that resulted in persistent inflation. As purchasing power remains a problem for many Americans, workers become disenchanted with jobs, especially when the monetary benefit of government handouts exceeds wages.
Reducing government spending is imperative. Doing so will help the Fed tame inflation, reignite labor force participation, and spur job creation.
Celebrating wins is important, especially during the recovery after the Donald Trump lockdowns, but our leaders must not turn a blind eye to underlying problems. As we await jobs reports, we must consider the underlying issues that affect Americans directly rather than just the headlines.
What we uncover might shape whether our elected leader champions free-market flourishing or leans toward the big-government ideologies our forefathers warned against.
