Today’s jobs report was disappointing. Economists expected employers to create 217,000 jobs in August; we got only 173,000. And more adults are simply calling it quits — they don’t work and they’re not looking. Labor force participation is at its lowest in almost two generations.
The news wasn’t all bad. Unemployment hit a seven-year low and the economy is adding jobs at a decent clip, 212,000 a month on average so far this year.
Participation vs. Unemployment
The falling unemployment rate sounds good, but it doesn’t count working-age Americans who have dropped out of the labor force. Last month, the share of adults working or looking for work held at a 38-year low. Typically, labor force participation is around 68 percent, but it’s been at 62.6 percent for three months now.
“You have a big segment of the working-age population that’s shut out of the labor market. That lowers demand for goods, services and investment,” Redfin Chief Economist Nela Richardson said. “Without demand, we can’t get robust economic or wage growth. The economy gets stuck.”
Maybe some of those labor force dropouts won the lottery and are just living large. But a lot of them simply have given up. In the end, the reasons why they’ve checked out don’t matter.
“Whether it’s by choice or not, we’ve been in a really low productivity cycle,” Richardson said. “The economy in the first half of the year grew at only 2.2 percent. We’d expect at least 3 percent growth by now.”
So What?
Today’s report sends no clear signal on the Fed, which will decide this later this month whether to raise interest rates.
“The evidence tells you two different things. You have to pick which part of the chart you want to focus on,” Richardson said.
While the central bank doesn’t control your mortgage, its actions do affect the economy and financial markets, which can affect the cost of a home loan. For now, we expect mortgage rates to stay low.
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