Not so long ago, the number of jobs created in the prior month was considered the single most important piece of information in the rich set of employment data released by the U.S. Bureau of Labor Statistics on the first Friday of every month. More recently, the focus shifted to wage growth as it became apparent that the economy had recovered its employment mojo.
Now both these metrics should take a backseat to the measure of labor-force participation and the related employment-population ratio.
After steadily increasing over several decades, these two measures of the size of the U.S. labor market plunged as a result of the recession induced by the 2008 global financial crisis. As late as last year, both metrics remained at or near their multidecade lows.
The civilian labor force participation rate reached a recent historic low of 62.4 percent in September 2015, a full seven years after the eruption of global financial and economic instability. This compares to 66.2 percent at the beginning of 2008. In the most recent data, contained in the jobs report for February released a month ago, it stood at 62.9 percent.
Meanwhile, the employment-population ratio (for those 16 and over) fell from 62.9 percent at the beginning of 2008 to a recent historical low of 58.2 percent in January 2011. It has recovered somewhat, but, at 59.8 percent in February of this year, it also is well short of where it was and could be.
Economists have not come to broad agreement about the causes of these movements. Some favor structural factors, such as demographics and the impact of technological innovations. Others believe that more cyclical forces, including insufficient aggregate demand, have played a determining role.
It is hard to see analytical breakthroughs that would resolve this important debate any time soon. As a result, the data itself will be critical, including whether the small bounce in both metrics gains momentum.
The potential implications of how this question is answered extend well beyond the future economic well-being of the U.S. and the related social and political dimensions. They also speak to the challenging policy assessment facing the Federal Reserve -- namely, the likely mix of “benefits, costs and risks” as the central bank continues to use unconventional monetary policy to stimulate the economy. Moreover, market participants will be watching closely, given their dependency on Fed support and its impact on the size, sign and volatility of future investment portfolio returns.