The unemployment rate didn’t fall — and that’s good news

The jobs report released today was full of good news — 257,000 new jobs added in January. 147,000 new jobs were added by revisions to December and November data. 91,000 new jobs were added by revisions to earlier data. Average hourly wages rose, and the previous month’s wage data was revised upward.

But perhaps the best news of all is something that sounds a little odd — the unemployment rate didn’t fall.

That’s because the years-long trend toward a falling labor force participation rate turned around. A bunch of new jobs were created, but the ratio of employed people to people looking for work didn’t fall since the denominator rose along with the numerator. The reason this is a big deal is that nobody was exactly sure what had driven the decline in participation. Here’s a chart where the White House’s top economists tried to puzzle it out:

What they came up with was that about half if it was underlying population aging, and then the rest was a mix of cyclical effects (i.e., a bad economy) and residual (i.e., they don’t know). The aging piece of this wasn’t going to change. If anything, it was only set to accelerate. So that decline in the size of the workforce could potentially have put a ceiling on future economic growth.

The big question then became, what would happen with the green and blue slices? As the economy improved, would the cyclical effects go away as people head back into the workforce or would they give up forever? And whatever caused the mysterious blue wedge, would it ever go into reverse?

A stable unemployment rate in the context of job growth and wage growth is a sign of good news about those green and blue wedges. It means that not only have we had some good economic growth news over the past nine months, but that growth is likely sustainable and there’s no need to panic about inflation or anything else. Employers are getting more interested in hiring people, and they’re not running out of people to hire.