November’s Jobs Message to the Federal Reserve

The labor market is healthy enough to take higher interest rates

WSJ editorial. 

"Friday’s jobs report for November was stronger than Republicans and many in the media are saying. While the U.S. added fewer jobs than expected, the labor force swelled with new workers. What do you know? More Americans are looking for work now that the pandemic enhanced unemployment benefits have lapsed.

The Labor Department’s establishment survey showed the U.S. added 210,000 jobs, which is significantly fewer than the 534,000 on ADP’s private payroll report. But the unemployment rate on the government household survey fell 0.4 percentage points to 4.2%, which is 0.2 percentage points below where it was in March 2020 before lockdowns started.

Employment increased by 1.1 million while the labor force grew by 594,000—the biggest increase since October 2020. Labor force participation rose 0.2 percentage points to 61.8%, the highest it’s been during the pandemic, though still 1.5 percentage points below February 2020. The establishment survey was less buoyant, though it showed big gains in construction (31,000), manufacturing (31,000) and transportation and warehousing (50,000). This should help with supply-chain problems.

The household and establishment surveys converge over time, and November’s jobs numbers could later be revised up. Yet the U.S. is still short 3.6 million workers and 3.9 million jobs from before the pandemic. Businesses still say finding the right workers is their main concern. NFIB, the small business lobby, reports that 29% of owners say employee quality is their top problem—a 48-year high.

A major impediment to getting workers has been generous transfer payments, including the $300 weekly unemployment bonus, $300 monthly per child allowances, food stamps, rental assistance and more.

GOP states cut off the unemployment benefit bonus in early summer, which is one reason employment increased by more than one million in July. They finally expired in Democratic states on Labor Day. Continuing unemployment claims have since plunged by 9.6 million, which Democrats are taking credit for though they wanted to extend the bonus indefinitely.

Democrats say unemployment declined because pandemic fears eased. Yet the Labor data showed little change in the number of people who say they were unable to work or look for work due to the pandemic. While the labor shortage continues to restrain hiring, job growth should continue if politicians don’t panic over Covid-19’s Omicron variant.

For the Federal Reserve, the November message is that it is long past time to speed up its bond-buying taper and begin raising interest rates. The economy’s problem now is rising inflation, not unemployment."