November and December Jobs Report

Jobs reports have been consistently good recently. 252 thousand jobs were added in December; October and November were both revised upwards from previous estimates. It's starting to not be interesting to pay attention to the job numbers. GDP growth in the US isn't doing bad either, but the rest of the world seems to be slowing.


But as far as looking at job figures as an indicator of growth one must keep in mind the theory of the Natural Rate of Unemployment. This holds that there is some rate of unemployment that is inevitable: caused by things such as people choosing to switch jobs, or put out of work by technological changes for example. This is different from unemployment caused by cyclical short run changes in Aggregate Demand. The theory holds that in the long run wages and prices will adjust to any cyclical variation and unemployment will return to the natural rate. In the short run prices and wages are sticky, so this takes time. The take away lesson is that unemployment should fall to more normal levels regardless of economic growth performance, so long as the contraction stops. The result is lower unemployment from people taking jobs that they would not have before, or at lower real pay and such things. The reality isn't that bad, but such an adjustment is certainly at work in some proportion.