I am generally a proponent of the Unemployment Rate Only approach to the labour market report … however allow me this modest indulgence.
The aggregate hours worked data has problems on a month on month basis, however the widening gap between the pre-GFC trend and the current level of hours worked suggests that the output gap is widening … even as the unemployment rate remains low.
Once this ‘gap’ is taken into account, I do not think there is much ‘puzzle’ left in this data – those who dismiss it as ‘wrong’ are missing some important subtleties.
Looking at the gross flows data (I’ll post charts later when I get time), you can see unusually high exits from employment to ‘Not In the Labour Force’, and then unusually high re-entry to employment from Not In the Labour Force.
So we need a good story for what’s going on here. My guess is that the structural change in the economy means that we are seeing a strong increase in redundancies. After a long period of strong growth and low labour market turbulence, those made redundant are likely to receive large payments, and are therefore unlikely to actively look for work (at least initially).
These folks are highly skilled, so they re-enter employment from NILF. This has depressed the employment prospects of the unemployed searchers, and they are responding to the lower expected returns from job search (more high quality competition) by giving up the search.
So there you have it: we get the weak job ads and falling hours worked that you’d expect given dismal profits / weak NGDP growth … but (at least for the moment) we do not see a rising unemployment rate.