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5 Reasons The Jobs Report Was Solid

Workers box jars of pasta sauce at a plant run by Chelten House Products in Bridgeport, N.J.
Jonathan Spicer | Reuters
Workers box jars of pasta sauce at a plant run by Chelten House Products in Bridgeport, N.J.

Though the headline number missed the average estimate, here are 5 reasons the August jobs number was actually quite good:

1) July's payroll number was revised up by 30,000 and the two month jump is 44,000 jobs.

2) The unemployment rate fell to 5.1%. It declined across many categories and remarkably is now just 2.5% for those 25 years or older who have a 4-year college degree.

3) The duration of unemployment was down across all categories from this time last year.

4) The number of "discouraged workers," (those who stopped looking for a job), fell considerably from last year.

5) The gain in jobs was broad-based, across nearly all sectors. Oil & gas, what the government calls "mining," was again the big drag. The oil slide has cost us nearly 90,000 jobs since December. Sadly, that is likely to go higher.

These 5 reasons are also why I believe the Federal Reserve will raise interest rates this month for the first time in nine years.

On the flipside, of the two negative data points that bring the bears, one may not be entirely what it seems.

First, the biggest negative: many jobs being created are either part-time, lower wage, or both. This is true, and perhaps the biggest problem the economy still faces. As I've said, America needs to decide what we want to be: an economy where goods are made here, maybe cost a little more, but bring higher income to those who make the goods. Or a culture of cheap goods and low wages. We can't be one without the other. Without pricing power, there is little wage power. Can anyone point me to a nation where the cost of goods production is low but salaries to make those goods are high? I can't think of one. If it exists, please let me know. More bluntly: we consumers can help drive income by spending a little more on products made by our neighbors.

The other big negative the bear camp points to is the low labor force participation rate. The percentage of working age adults who have jobs has fallen for years, and is now at its lowest level since 1977. Many take this to indicate the job market is actually so weak tha many have given up and permanently dropped from the workforce because there are simply no jobs. Surely there is some truth to that. Available, good jobs still are hard to find in many parts of the country.

But like nearly everything with economics and finance, another argument can be made.

First, let's remember that there are also still more than 5 million open jobs in America, the highest in years, so it is simply not true to say participation is low because of a lack of jobs.

Next, let's also remember to look at history for context. Yes, participation is back to 1977 levels, but it had been lower for decades prior to the disco era. This chart comes via the BLS:

Much of the labor increase in the 1980s and 1990s had to do with women entering the workforce, which was a huge positive for the American economy. But unfortunately, one thing may be bringing us back to more single-earner households: the high cost of child care.

Look at this chart and its accompanying report from the Pew Research Center. It shows how child care costs continue to rise and eat a higher percentage of our incomes. Child care can now easily run over $1,000 per month, per kid. Throw two or three kids in child care, give a chunk of your pay to Uncle Sam, pay for gas, commuting, clothes for work, etc. and it is easy to see that unless your pay is high enough, work could end up costing you money. Add in the extra stress, (sorry, your kid is sick today and can't come to day care .. even though you have a big work meeting), and many families are opting out of dual income life if they can. It isn't gender based either. The rise of stay-at-home dads is a well-known trend.

With due respect to my friends and colleagues in the dismal science, it doesn't take an economics Ph.D. to understand that unless child care costs come down or wages rise enough to cover this growing expense, there's no reason to think the labor force will grow meaningfully anytime soon. But it doesn't mean the underlying economy is weak, either. It simply could – and would – be stronger if we can make child care less of a problem for more working families.

Commentary by Brian Sullivan, co-host of CNBC's "Power Lunch." Follow him on Twitter @SullyCNBC.