At first blush, America got a doozy of a jobs report last week. Employment jumped by 313,000, its biggest single-month gain since mid-2016. But there also was some attendant weirdness: The unemployment rate didn’t budge, and, worse, wage growth actually slowed down.
That dip in wages, in particular, reveals a lot about America’s economy.
You might remember last month when it was reported that wages had grown 2.9 percent between January 2017 and January 2018. That was higher than expected. Financial markets became convinced that inflation was right around the corner, and the Federal Reserve would have to raise interest rates faster than anticipated. The result was a good-news-is-bad-news panic that sent the stock market into a series of spectacular plunges.
At the time, I argued this was probably a blip: Other economic fundamentals didn’t justify inflation worries. Sure enough, January’s change was later revised down, and February’s year-over-year growth fell to 2.6 percent. We’re right back on the lackluster trend that’s characterized the entire recovery from the Great Recession, under both Presidents Obama and Trump. And we’re still well below the 3.5-to-4 percent wage growth that’s usually associated with full employment or something close to it.
That in and of itself is weird.
Unemployment is at 4.1 percent, which is already lower than it was in 2007, and almost as low as it was in 2000 — the last two times we achieved 4 percent wage growth. Remember, labor scarcity is what increases pay. As unemployment falls, there are fewer workers just waiting around for jobs, so companies have to raise their offers to poach already employed workers. That, in turn, can lead to higher prices for things and thus inflation. With unemployment where it is, wage growth shouldn’t be this low.
It gets weirder.
Let’s return to the unemployment rate for a moment. It’s been at 4.1 percent for several months now, and February saw little change. How do you add 313,000 new jobs to the economy without the unemployment rate so much as twitching?
Part of the answer is that new workers are constantly joining the economy as young people come of age and immigrants arrive. That will continue so long as the population keeps growing.
But this is a pretty extreme discrepancy to be explained by that alone. The answer is likely elsewhere in last week’s jobs report: Labor force participation jumped from 62.7 percent to 63 percent. That’s an increase of 806,000 people.
The unemployment rate is a percentage, but a percentage of what? It would be silly to count stay-at-home parents or retirees as “unemployed.” The answer is it’s a percentage of the labor force — everyone who either has a job, or has looked for one in the last month. The assumption is that if people are looking for work more sporadically than that, they probably have good reason to be out of the workforce, and shouldn’t be counted as “unemployed” by government statistics.
But that assumption could be wrong. Indeed, the leading theory for why wage growth …read more
Source:: The Week – Business