The economy sure doesn’t look like it’s in recession (yet)

Not what you’d expect to see if the economy were already in free fall.

Plus, some of the sectors that need to hire up the most saw big gains. Food services and drinking places, for instance, added 60,000 jobs in September; this is one of the industries that was hit hardest by the pandemic and is still short more than half a million positions relative to its pre-covid peak. Health care, which desperately needs more workers, continued its hiring spree, too.

Now consider the less good news, starting with the unemployment rate.

The unemployment rate ticked down, to 3.5 percent, matching the low level notched just before the pandemic, in February 2020. Sounds pretty good, right? Except it fell partly for the “wrong” reason: The labor force declined by 57,000, and people outside of the labor force are not counted in the official unemployment calculations.

The economy needs the labor force to be growing, not shrinking, if we are to get labor shortages (and inflationary pressures) under control.

In general, there has been a large decline in the share of Americans in the labor force. This is partly because of demographics (baby boomers retiring) and partly because of changes among prime-working-age Americans (those age 25 to 54).

It also doesn’t help that we’re still “missing” about 1.7 million working-age immigrants, relative to the numbers we’d expect to see if pre-2020 trends had continued.

Additionally, not all of the industries that need to hire have been able to do so.

State and local governments, for example, shed 27,000 positions in September. This is a distressing development: As I wrote last month, state and local governments are still extremely short-staffed relative to pre-pandemic levels. The private sector has recovered all the jobs lost, on net, since February 2020, while municipal governments are still way behind.

That’s not because they’re broke or actively trying to shrink the size of the public sector — in fact, many governments have tons of vacancies and are eager to hire, because right now basic public services such as trash pickup are struggling. But in the current labor market, government can’t compete with the private sector on wages. A lot of government jobs have recently become more stressful or unpleasant, besides. And rather than raising pay sufficiently to attract more workers, many governments are returning cash to taxpayers.

Speaking of wages: Average hourly earnings in the private sector rose 5 percent over the past 12 months. Which is not nothing, exactly, but almost certainly quite a bit less than prices rose over the same period. We’ll know for sure when we get inflation numbers for September next week. (Year-over-year price growth in August was above 8 percent.)

Price growth has been outrunning inflation for more than a year, a source of pain for consumers and fodder for Republican political messaging. While there have been some welcome signs recently that inflation might be cooling — particularly as gas prices came down and asking rents appeared to be declining — it’s not clear we should count on that trend continuing. A cartel of oil-producing countries just announced big production cuts, for instance. That will push gas prices higher.

Meanwhile, the Federal Reserve has continued to sharply raise interest rates in an effort to dampen demand and therefore price growth. The flip side of this risk, of course, is that it might accidentally raise rates so much that they tip the economy into recession.

So for now, it seems unlikely we’re in recession. Tomorrow, or next year, is another story entirely.