The Federal “Jobs Report” Simply Understood

On the first Friday of every month, the U.S. Labor Department reports key employment data for the previous monthly period. The report includes information about all aspects of the job market: the unemployment rate, the number of jobs added or lost, total hours worked, average hourly wages, and the jobs picture for various sectors of the economy like government jobs, restaurants, manufacturing, and others. This “Non-farm Payroll Employment Report” is our nation’s monthly report on how many jobs were added or lost, and where. The government doesn’t keep track of farm employees because farm employment is considered to be seasonal.

When the “Jobs Number” is reported, it is typically provided as a piece of “data”, like “The government reports that 180,000 jobs were created in July”, followed by “this is higher than expected”, or “this is lower than expected”. What we’d like to know is why this number is important, and whether or not the reported number is good news or bad. To answer these questions, we need to understand the total workforce (the number of people of working age), and how many jobs are currently available for that workforce. and how many jobs need to be created to have enough jobs available for that workforce..

Several things are happening in the workforce two of which have a significant impact. The first is population growth which translates into workforce growth. The Congressional Budget Office estimates for workforce growth in 2014 and 2015 are approximately 1 million for each of those years. Again some simple math shows that if we need 1,000,000 new jobs per year, then the economy needs to create about 83,500 new jobs per month.

1,000,000 new jobs / 12 months = ~83,500 new jobs needed per month

The second is the number of people leaving the workforce. Since approximately 10,000 Baby Boomers are reaching retirement age every day, the number of people retiring from the workforce could approach 300,000 each month, or 3,650,000 each year. Since many people are delaying retirement, or re-entering the workforce after retirement, the actual number of people leaving the workforce is somewhat lower.

In the wake of the Great Recession of 2007 there was a reduction in payroll employment approaching 9 million in January of 2010 when the trend began to reverse. The time required to recover these 9 million jobs depends on how many new jobs are created and how quickly.

Shortage of 9 Million Jobs in 2010

Jobs Created per month           Time to recover from 2010

100,000                                       90 Months    (7.5 Years – 2017)
125,000                                       72 Months    (6 Years – 2016)
150,000                                       60 Months    (5 Years – 2015)

But in addition to recovering these 9 million jobs, the workforce was also growing at about 1,000,000 people per year. So even though the economy may have been creating (or recovering) about 1,500,000 jobs per year, we really needed to generate about 2,000,000. Over a five year period, this would leave us with a shortfall of about a 2.5 million jobs. But that’s not where we are today. The actual shortfall as of January 2015 was 5.6 million jobs. This number includes workforce growth, so we can use this number to determine a reasonable timeline for full recovery.

If the economy is creating 180,000 jobs each month, then with some simple math we can determine that the job market should recover after about 31 additional months from now, or 2018. This would mean another 2+ years of difficult employment prospects for those out of work, and those entering the workforce.

5.6 million Jobs needed / 180,000 jobs created monthly = ~31 months

The actual job creation numbers reported by the Bureau of Labor Statistics suggest a longer timeline. The October 2015 Jobs Report stated that job creation for September 2015 was 142,000, but it also noted that downward revisions were made for some prior months this year. August numbers were revised down from 173,000 to 136,000 and July numbers were revised down from 245,000 to 223,000. The 2015 average monthly job creation number announced November 6th is 206,000.

5.6 million Jobs needed / 206,000 jobs created monthly = ~27 months

This means that at the current rate of job creation, it will be February 2018 before we recover all of the jobs lost during the recession. Expecting the economy to create 206,000 jobs each month is a bit optimistic, so it will probably take longer.

Thanks for reading.


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