In December, the labor market continued its improvement by adding 200,000 jobs, and the unemployment rate fell again to 8.5 percent, the lowest level since February 2009. The annual year-end revisions to the unemployment rate confirm the gradual but significant improvement in the labor market since the end of summer. The December report indicates that the labor market has strengthened along with the rest of the U.S. economy. Unfortunately, the growth is still very slow and tenuous as the economic headwinds from the Atlantic and Washington, D.C., impede the recovery.
The household survey report indicates that the unemployment rate fell by 0.2 percentage points from 8.7 percent to 8.5 percent. The year-end revisions indicate that the November unemployment rate was a bit higher than originally announced. However, the revisions confirm that the unemployment rate has declined by more than half a percentage point since August.
The labor force participation rate remained flat at 64 percent with a small, statistically insignificant decline in the civilian labor force from a drop in teenage participation. The decline in the unemployment rate was driven primarily by an increase in employed workers and a decline in the number of unemployed workers.
This month’s report continues the story of rapid improvement for adult men but little improvement for adult women. The adult male unemployment rate has fallen from 8.7 percent to 8.0 percent since October. The unemployment rate for adult women remains flat at 7.9 percent.
The payroll survey also showed solid growth with 212,000 private-sector jobs and a decline of 12,000 government jobs. Job growth was widespread throughout the private sector, with even construction (17,000) showing slight growth. Transportation and Warehousing (50,200) led the sharp growth in the service sector. Most of this growth was from couriers and deliverymen, which was sparked by strong online retail sales. Two concerns: Temporary help turned negative (-7,500) and job growth in November was revised downward.
Average weekly hours ticked back up to 33.7, the same level as October. Average hourly earnings remained flat for production and non-supervisory employees.
Good, But Not Good Enough
While the jobs report was encouraging, it will still take years for unemployment to recover at this pace. Economists estimate that the “natural rate of unemployment” in the U.S. economy is 5.2 percent.
The Heritage Foundation used data from the Bureau of Labor Statistics to calculate how long, with a given level of job creation, it would take unemployment to return to its natural rate. These estimates are not a prediction of how quickly unemployment will fall; instead, they illustrate what different rates of monthly job creation mean for the speed of the labor market recovery.
If employers continue to create 200,000 net jobs per month, then one year from now, the unemployment rate will still stand at 7.9 percent. At that pace, the unemployment rate will not return to normal levels (or 5.2 percent) for four and a half years—not until September 2016.
However, the payroll survey showed stronger growth in December than it did in most of the rest of the year. If employers create jobs at the same pace they did in the 4th Quarter of 2011—137,000 jobs per month—then the unemployment rate will barely change over the next year, standing at 8.4 percent in December 2013. At that pace, unemployment would not return to natural levels at any point in the next decade.
Even with strong economic growth, it will take time for unemployment to return to normal levels. If employers add an average of 265,000 net jobs per month—the rate the payroll survey showed between 1997 and 1999—then unemployment will not return to its natural rate until December 2014.
Policy Changes Needed to Spark Job Creation
The December report is a nice belated Christmas present, with both surveys showing signs of labor market growth. However, there have been false signs of a labor market rebound, such as the ill-fated “recovery summer” of 2011. The U.S. economy is resilient, and the labor market should continue to grow throughout the next year. But the growth is too slow to help many workers, due in part to the slowdown in the European economy. Worse, however, are the policies in Washington that have impeded or hurt job creators. Entrepreneurs are looking down the barrel of tax increases and the failure of politicians to have a credible debt-reduction plan. In the end, it is how these job creators see the future that will determine the pace of recovery in overall employment.
Rea S. Hederman, Jr.
, is Assistant Director of and Research Fellow in the Center for Data Analysis, and James Sherk is Senior Policy Analyst in Labor Economics in the Center, at The Heritage Foundation.