Inertia is a very important process. Inertia, like love, makes the world go round, and keeps it going around. Bodies in motion tend to stay in motion. Economies that are growing tend to continue growing. So turning to the January employment situation report reminds us that the economy has inertia on its side. It has a reasonable head of steam. Growth is not the wow factor. The economy is growing at about 2 percent a year, which is pretty pedestrian by historical standards. Instead it is about the potential of the economy. The reason why potential growth is low today relates to the reason why recent jobs reports have been raising some eyebrows.
When an economy is growing, economists always look for the irresistible object, for whatever it is that will stop the forward motion of the economy, and make an economy that is newly at rest tend to stay at rest. This is not because economists love misery. It is only because the emergence of an obstacle to a growing economy gives us our next job to try to perpetuate growth or, if that obstacle in fact stalls the economy, to restore growth.
The economy has been creating a lot of jobs month after month, which is surprising because the working age population has been growing very slowly. Americans are greying, Baby Boomers are retiring, and there are proportionately fewer teens and young millennials to take their places in the labor force. As the number of jobs grows at an impressive pace month after month, economists are scratching their heads and wondering, where are all of these people coming from? In looking for roadblock that could stop the jobs bandwagon, and potentially the economic expansion, when will those critical people stop showing up in the monthly jobs report?
The January jobs report provides the answer, at least for one more month, which is not just yet. The economy added 225,000 more nonfarm payroll jobs. Expansion continues, even though the labor force participation rate is barely changed, and the trend dictates that the ceiling on labor force growth is close overhead. Worrywart economists looking might see a few small clouds on the otherwise bright horizon. Manufacturing employment continues to look flat, despite all the efforts to expand exports and add good blue collar jobs. Long term unemployment did not decrease much.
But in the broader landscape, the picture is good. People continue to find jobs. People with jobs tend to be happy and spend their wages, which in turn creates more jobs for the next month. Once again, bodies in motion tend to stay in motion. So economists looking at this jobs report do not see specific brush fires to fight, but rather continue to worry about dry future conditions. The working age population keeps growing slowly, while the headroom for growth in our labor force continues to shrink.
Preparing not for the next monthly jobs report, but rather for the coming years and decades ahead, which is what we should actually care about, requires that we try to speed up the paltry growth in the labor force so that we can grow production faster and provide all of those retiring Baby Boomers with the living standards that they expect, with enough left over so that our working age population, and their children in turn, have the kind of living standards and financing of the education that they need.
To that end, we need to encourage more adult Americans to join or to stay in the labor force, to upgrade their skills so they can be more productive and earn higher wages, and to attract the most talent from all around the world. Every forward thinking enterprise in every country is looking for the best people from anywhere around the world to fill cutting edge jobs, so that those businesses can seize economic leadership. If the United States wants to keep the lead, we need to compete aggressively. If we do not, the problem sniffing economists will for sure someday see trouble in the jobs reports month after month. Economies at rest tend to stay at rest.
Joseph Minarik is a senior vice president with the Committee for Economic Development of the Conference Board. He was the chief economist at the Office of Management and Budget under President Clinton and coauthor of “Sustaining Capitalism: Bipartisan Solutions to Restore Trust & Prosperity.”