The October jobs report was released today. The headline payroll employment number came in at 214,000, slightly below economist expectations, but a good number nonetheless. The prior two months of non-farm payrolls were revised up by a total of 31,000. Over the last six months payroll employment growth in the U.S. has averaged a healthy 235,000.
The unemployment rate also came down. Using the Bureau of Labor Statistics (BLS) headline number, the unemployment rate ticked down a tenth of a point, but when you take the data out another decimal point, you find that the unemployment rate fell almost two ticks. In September, the unemployment rate was 5.94% and in October it was 5.76%–a difference of 0.18%.
What does the jobs report mean to investors? Here is something for you to ponder on the jobs report and the current stance of monetary policy. The Federal Reserve estimates that in the long-run, full-employment for the U.S. economy is somewhere between 5% and 6% (even when the economy is booming a share of the workforce will be unemployed). Let’s take the mid-point of that estimate and call full employment in the U.S. 5.5%. The Fed’s stated goal is to reduce unemployment to its estimated natural level. The implication is that stimulative monetary policy will be employed until that level is reached.
The difference between 5.76% and 5.5% is 0.26%. The BLS puts the size of the U.S. labor force at 156.2 million. If we multiply 0.26% by the 156.2 million people in the labor force we get a number of 406,000.
What does that 406,000 number represent? That is the number of folk who we might call cyclically unemployed. It sounds like a big number, especially if you are one of the unemployed, but now compare that number to the 38 million people who the Social Security administration estimates are retired.
What do retired folk have to do with the unemployed? Fed policy is punishing retired savers and investors, many of whom saved responsibly for decades, with zero percent interest rates in an effort (an ineffective one at that) to help 406,000 people find jobs. It is a bit like robbing Peter to employ Paul.
Jeremy Jones, CFA
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