By Matt McDonald and Russ Grote
Today's jobs report is officially the last report of the Obama administration. While President Donald Trump has been in office for a few weeks, the data for the establishment survey (the headline jobs number) is based on employment for the pay period that includes the 12th of each month. Therefore, the January jobs number belongs to the outgoing President, making this former President Obama's farewell jobs report.
With 227,000 jobs gained, Obama finished his tenure with 76 months in a row of job creation and an unemployment rate of 4.8 percent - down from 8.3 percent at the beginning of his term. While many factors drive job growth and any President’s impact on employment is debatable, this last jobs day provides an opportunity for some historical perspective.
In total, the Obama years saw 11.5 million net new jobs. Historically, this is fourth all-time (Fig.1). On a per month basis, the economy during Obama's tenure averaged 120,000 jobs per month. This is sixth all-time (Fig. 2). Only former Presidents Clinton, Reagan, and Johnson performed better than Obama on both metrics.
The steady, but not rapid job growth seen under Obama accompanies other underlying and far more interesting economic narratives during his two terms. There were plenty of debates on part-time jobs, the geography of the recovery, green shoots, defining the NAIRU, and jobs saved versus added. Below are our top jobs debates from the past eight years.
The HPS Top Jobs Debates From The Obama Years
1. Seasonal adjustment problems and the weather - Towards the end of 2011 and the beginning of 2012, a new economic discipline emerged: econometeorology, the explanation of the economy through weather patterns. At the heart of this debate was a disconnect between a strengthening labor market and relatively weak GDP reports. One explanation was that a warmer-than-average winter was not factored into the Bureau of Labor Statistics seasonal adjustments. Functionally, this meant the warm weather was pulling construction jobs forward to January that were gained in early spring. In fact, Goldman Sachs estimated that the warm weather added between 50,000 and 70,000 jobs to the January number. Short-term sunny stimulus or a misleading call for showers, the seasonal adjustment debate will certainly return again in the future.
2. The Missing Worker: Explaining the decline in prime-age labor force participation - Even as the unemployment rate declined over the course of his first term, it became clear that the decrease was not pure good news, as part of the decline was due not to new jobs, but people dropping out of the labor force. The implication – Obama was on path to low unemployment, but a weak, not a strong, economy was potentially helping him along. Our analysis in February of 2012 found that if the “missing” people were in the labor force, the unemployment rate would have been 10.4 percent, not 8.5 percent. Ultimately, under Obama, the labor force participation bottomed in September of 2015 and has risen slightly to 62.9 percent today. While demographic factors certainly play a role, prime age labor force participation rate declines suggest other factors are still at play.
3. The race to 8.0 percent unemployment – At the outset of his reelection campaign, Obama benchmarked the success of his economic policies against the unemployment rate dropping below 8.0 percent by Election day...and it came down to the wire. In the second-to-last jobs report prior to the Election, the unemployment rate fell from 8.2 percent to 7.9 percent, thanks to a strong spike in the household survey jobs number. Famously, former GE CEO Jack Welch suggested foul play was responsible. Ignoring the professionalism of the career BLS staff who calculate these numbers for the moment, the six-month trend showed both the household and establishment jobs surveys told the same story over that time period, which was also in line with private sector estimates. We declared an Obama victory against his benchmark, but noted there was a lot more to do for a truly strong economy.
4. Fed Talk: From Greenspan's suitcase to Bernanke's targets - At the end of 2012, in an effort to better define forward guidance, then-Fed Chairman Ben Bernanke announced that the central bank would tie raising interest rates to unemployment. Specifically, the Fed stated that it would not consider raising the Fed Funds rate until the unemployment rate hit 6.5 percent, which they expected to happen in mid-2015. The Fed hit its expectation in 2014, but, as we now know, did not raise rates until unemployment fell to five percent in late-2015, abandoning this type of forward guidance. The effectiveness of forward guidance strategies continues to be hotly debated along with anonymous dot plots as we enter a rising rate environment.
5. The Recovery Of Our Discontent: Squaring the strong jobs market with weak consumer surveys - The Obama recovery is one of the longest recoveries in history. GDP has expanded 91 months in a row compared to historical business cycle average of 80 months, while steady job growth has pushed unemployment below five percent. Yet, prior to the Election, consumers reported little confidence in the economy and right track-wrong track numbers signaled a grumpy country. A common position is that wage growth has not picked up and the recovery has benefitted only the wealthy. We explored adjusting job growth numbers for size of the labor force. Adding 200,000 jobs in an economy of 80 million workers feels a lot different than adding 200,000 jobs in an economy of 160 million workers. The result, when adjusted for labor force size, is that workers who joined the labor force after 1999 have experienced historically below-average job growth for 11 out of 16 years. And for workers who joined the labor force before 1999, the recent "upswing" in job growth pales in comparison to previous eras. In fact, every other recovery in recent decades had stronger adjusted job growth than the two most recent recoveries.
With the Obama jobs record in the books, it’s now President Trump’s turn to either take the blame or credit for the job market. We’ll see whether he can reach his stated goal of being the best jobs President of all-time, but it’s probably a safe bet there will be more debates ahead.