Unemployment rate rises to 5.7 percent. That's great news.

The US economy added a surprising 257,000 jobs in January, but the unemployment rate increased 5.7 percent. The unemployment rate increase is good news, because it means more Americans are upbeat about their job prospects and beginning to look for work. 

Shannon Stapleton/Reuters/File
People wait in line to enter the Nassau County Mega Job Fair in Uniondale, N.Y. The economy added a surprising 257,000 jobs in January, and the unemployment rate rose to 5.7 percent because more Americans were looking for work, the Labor Department said Friday, Feb. 6, 2015.

On its face, January was yet another great month for job creation. But 5.7 percent unemployment in 2015 looks very different than it did a few decades ago.

The US economy added 257,000 jobs in January, according to figures released Friday by the Labor Department. That exceeded economists’ expectations for about 234,000 added jobs. It was the 11th straight month that the labor market has added 200,000 jobs or more – the first time that’s happened in over two decades. 

“An unequivocally strong report, highly unusual for a month notorious for disappointments,” MFR Inc. economist Joshua Shapiro writes in an e-mailed report.

Additionally, jobs numbers for November and December were revised upward by about 147,000 jobs; November jobs growth now stands at a whopping 423,000 – the biggest single-month gain since May 2010.

The unemployment rate did go up, rising slightly from 5.6 percent to 5.7 percent, “but  this was linked to an increase in labor force participation,” Markit economist Chris Williamson writes in an e-mailed analysis. “The rise in the participation rate from 62.7 percent to 62.9 percent suggests that more people are re-entering the job market as optimism about the economy improves.”

That uptick in labor participation – the percentage of Americans working or actively looking for a job – could mark an essential sea change in the economy’s recovery. Job growth has been undeniably robust in the past year, but the proportion of working-age adults who aren’t looking for work is the highest it’s been in nearly four decades. When the unemployment rate goes down, the worry is that just means more workers are giving up on finding a job altogether.

The issue got some attention this week, when the head of the Gallup polling organization released an op-ed arguing that any celebration of the falling jobless rate is shortsighted. “If you, a family member or anyone is unemployed and has subsequently given up on finding a job … the Department of Labor doesn't count you as unemployed,” it reads. “Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast ‘falling’ unemployment.”

It’s not that the job market hasn’t improved, says Diane Lim, an economist with the Committee for Economic Development (CED), in a phone interview. “But I agree that on its own the unemployment rate is not a very helpful statistic.”

If the participation rate doesn’t start climbing soon, she says, policymakers need to start looking at the problem a little more closely. “Who are these people? Why are they still unemployed?” she asks. “It’s difficult to tell a middle-aged auto worker who’s laid off to go find something else in health care or retail. You can’t tell him it’s fine because [there are jobs in other industries], the economy is just transitioning.” 

The other nagging issue on the jobs front is wages, which also showed signs of life in January – average hourly earnings grew a plodding 0.5 percent last month, but a heartening 2.2 percent year over year. As with labor participation, any forward movement on wages is a hopeful sign. But experts will look for both to start accelerating in a meaningful way in the coming months. The Federal Reserve has cited wages as a major factor in its decision on when to finally raise interest rates this year.

“At present, as far as policy is concerned, the signs from the labor market are all positive,” Mr. Williamson writes. “Policymakers will no doubt be minded that, with job creation as strong as this and wages picking up, the economy looks increasingly able to withstand a modest tightening.”

But on a more basic level, wage acceleration and higher participation rates mean the recovery will finally start to hit the wallets and the outlooks of ordinary Americans, six years after the end of the Great Recession. 

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