Jobs continue to grow at a 2% annual pace

The October jobs report handily beat expectations (204K vs. 120K), but that only means that the economy was not weakening in recent months as many had feared. The important trends that have been in place for the past three years—2% annual growth of private sector jobs, and no increase in part-time employment—remain intact. The economy continues to grow at a modest pace.

These two charts show the monthly changes in private sector jobs and their 6-mo. annualized rate of growth. As should be apparent, jobs growth in this recovery has been quite similar to what we saw in the previous recovery. The private sector has been generating new jobs at the rate of about 2% per year, while the public sector—thank goodness—has been shedding jobs. (Though I would add that public sector jobs have been roughly flat over the past year.) That kind of jobs growth is only enough to give us 2-3% annual real growth in the economy (real growth is approximately equal to jobs growth plus productivity growth, which has averaged about 1% per year over time), which continues to be disappointing. Jobs growth will need to accelerate from here before we can get optimistic about a significant improvement in the economy.

The popular belief that the only jobs growth we have is coming from part-time jobs is a myth, as I explained in detail here. As the chart above shows, there has been zero growth in part-time employment ever since the recovery started. The ratio of part-time to total jobs has been falling since that time, just as it has during every recovery. There is nothing going on here that is unusual.

What is unusual—and disturbing—is the ongoing decline in the labor force participation rate, shown above (the last data point reflects the government shutdown and will probably be reversed next month). The decline in the participation rate began in earnest in 2009, and demographics cannot explain such a sudden change. What did change in 2009 were two government programs designed to pay people for not working: food stamp eligibility was significantly expanded, and unemployment benefits were extended in unprecedented fashion. This most likely contributed to people's decision to drop out of the labor force, though I suspect there are other factors at work as well.

The government shutdown last month only showed up in the household survey (red line), where jobs declined by a huge 735K, with the bulk of that declining coming from public sector jobs. This will likely be reversed next month.

Today's report adds to the body of evidence which suggests there is little or no reason for the Fed to continue its QE program.