The American jobs numbers are out and they continue to tell an odd, even bizarre, story. Of course, we should not place too much weight on the numbers from only one month. They’re really not all that accurate, the error bar is 100,000 jobs either way. However, what this month’s numbers seem to be telling us is that the Federal Reserve’s little gamble on keeping interest rates low is working, of which more in a moment.

The numbers themselves:

Employers added 287,000 jobs in June as the labor market bounced back resoundingly from a spring slump and eased concerns about a longer-term slowdown in payroll growth.

That’s a good number up from what was statistically really just zero last month. However, the oddity is in this:

The unemployment rate, calculated from a separate survey of American households, rose to 4.9% in June from 4.7% in May, partly retracing its drop from 5.0% in April. The workforce expanded in June after shrinking the prior month, and the labor-force participation rate ticked up to 62.7%.

What? The economy creates lots of jobs and yet the unemployment rate goes up? How can this happen? Well, after we discount the idea that the various uncertainties of the numbers make those two different surveys tell us different things (no, I do not think this is the cause) what we’ve really got is a confirmation that things are getting very much better in the American economy. Despite this:

Wages improved modestly, with average hourly earnings climbing 0.1 percent from a month earlier. The year-over-year increase was 2.6 percent, less than the 2.7 percent median forecast.

The average work week for all workers held at 34.4 hours in June.

Wages don’t seem to be doing very much and that is again consistent with the Fed’s experiment.

And to explain that experiment. Traditionally the US has had very little to no long term unemployment. On the simple basis that unemployment insurance is time limited, usually 6 months, although that can go out to 99 weeks in a recession. And there’s something that we’ve found out over here in Europe where unemployment benefits are generally not time limited. Which is that when someone has been out of the labor force for a year or two then they just never will find their way back into it. This is not a good idea – we know very well that involuntary unemployment causes great and persistent unhappiness among those condemned to it. We, the rest of us, also lose the ability to consume what those unemployed are not making of course.

But this latest recession was different. Not so much the depth of it, which was indeed great, but the length of it. This gave the US a rump of long term unemployment for perhaps the first time in any major sense in the modern era. The question that some have been asking (Paul Krugman a notable supporter) is how we’re going to deal with this? One answer is to keep interest rates lower for longer than would otherwise be the case. See if that will provide sufficient boost to get those discouraged workers back into at least trying to get jobs. If that does happen then the inflation that we might expect from being at what we normally regard as full employment (4.5, 4.7% or so unemployment) would be deferred. So, we’ll not see inflation rising as those discouraged come back into work or at least looking for it. And the signal of that would be good jobs creation, low wage growth and yet the unemployment rate rising.

All of which is actually what we are seeing. It blipped a bit last month but in general we’ve been seeing all three of those things. The employment to population ratio rising, weak wage inflation and good jobs numbers. Thus we would, tentatively at least, conclude that the experiment is working. Holding those interest rates down really does seem to be pulling people in from that long term unemployment. Hurrah! Gosh, how lovely, and all that. Nice when an economic policy actually works, isn’t it?