January Jobs: Another upside surprise shows the benefits of closing in on full employment.

February 1st, 2019 at 9:46 am

The US labor market just keeps on rolling along, turning in one good jobs report after another. Payroll gains continue to outpace expectations, wages are handily beating inflation while not pushing it up much, participation continues to suggest more room-to-run than most economists expected, and even the slight uptick in the unemployment rate last month, to 4 percent, was likely a temporary blip caused by the government shutdown (more detail on that below). The underemployment rate, which also spiked last month, was another temporary victim of the shutdown, causing a sharp, temporary increase in involuntary part-timers (those working part-time who want to work full-time). These measures of increased slack should fully reverse in coming months, assuming the government remains open, of course.

Payrolls were up 304,000 in the first month of 2019, well ahead of economists’ expectations for a gain of about 170,000, and the jobless rate ticked up a tenth to 4 percent. As noted, the uptick in the jobless rate is likely due to the shutdown and should fully reverse next month. The big jobs number for December was revised down significantly, from 312K to 222K, and other revisions to today’s report (e.g., a small annual benchmark revision) suggest that we should smooth out the monthly data to better discern the underlying signal.

In other words, cue the JB/KB (Kathleen Bryant, who does all the work on this report) monthly smoother! It shows average monthly payroll gains over the past 3 months to be a very robust for this stage of the expansion: 241,000. The other bars, which take monthly averages over longer periods, are around the same height, implying an underlying monthly trend slightly north of 200,000. This is well above what most economists believed sustainable, given estimates of “supply-side constraints,” i.e., the size of the available labor pool. Importantly, it appears this constraint is less binding than many thought, meaning there’s more room-to-run in the job market, and that we’re closing in on, but not yet at, full employment.

Participation measures are a bit hard to compare this month because of changes to the population weights in the survey (the weights are used to make the survey sample representative of the national population), but data provided in the report suggest participation ticked up in January to 63.2 percent, the highest rate since September 2013. The closely watched prime-age employment rate ticked up significantly for men, from 86.1 to 86.5 percent, and was up one-tenth of a point for women as well, from 73.4 to 73.5 percent (again, this monthly number should be handled with care due to the weighting change, but the underlying, positive trend is real and important).

The tight job market continues to generate near-cyclical highs in terms of year-over-year wage gains. Overall private hourly wage growth fell back slightly to 3.2 percent, from 3.3 percent in both November and December. For middle-wage workers–the 80 percent of the workforce in blue-collar or non-managerial jobs–wage growth was 3.4 percent. My estimate for January inflation (the official change does not get released until later this month) is 1.6 percent, driven down by low energy prices. That implies mid-level, real wage gains of 1.8 percent, a solid increase in buying power for these workers, many of whom have long been left behind (of course, we’re talking averages here, and we know that even now, significant pockets of labor slack still persist in some places around the country).

This positive trend in wage growth is captured in the figures below, which use 6-month moving averages to smooth out the jumpy, underlying series. The acceleration is notable. The third figure, which includes my inflation forecast, zeros in on the growing gap between rising nominal wage gains for mid-wage workers and falling price movements. The gap between the two lines represents the real gains touted above.

This gap will like close somewhat as energy prices rise, but I expect some level of real wage gains to persist. Another important point about these real gains: given that productivity growth is running at around 1 percent, when real wages grow faster than output per hour, the share of national income shifts from profits to compensation. As much research has revealed, this share has long shifted in the other direction–the wage share has been historically low, meaning the profit share has been high. In other words, the current tight labor market appears to be delivering a long awaited re-balancing of these shares.

As noted, the government shutdown is likely playing a small, temporary role in today’s report, though mostly in the unemployment rate. In terms of direct impact, the BLS reports that both furloughed and unpaid federal government workers should be counted in the payroll data, though furloughed workers should be counted as temporarily unemployed in the household data, the survey which yields the unemployment rate. Indirect, or spillover effects, such as a private-sector restaurant worker on temporary layoff because she works near a national park that was closed during the shutdown, could also be in play in today’s data. That said, the strong topline jobs number underscores the BLS commissioner’s statement today: “Our evaluation of the establishment survey data indicates that there were no discernible impacts of the partial federal government shutdown on the January estimates of employment, hours, or earnings.”

I’ll have more to say later about some of the guts of the report, but especially once we remove temporary shutdown effects from some of the household survey indicators, we’re left with unequivocal evidence of a few very important facts. First, in an economy with too little worker bargaining power and too much inequality, the benefits of closing in on full employment are powerful and equalizing. And second, Chair Powell and the FOMC were smart to put interest-rate hikes on hold. There’s non-inflationary room-to-run in this job market!





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6 comments in reply to "January Jobs: Another upside surprise shows the benefits of closing in on full employment."

  1. Gerald Scorse says:

    Of course we know who’s responsible for all this winning, don’t we? No need to mention his name, it’s already plastered all over the universe.


  2. Bob Anderson says:

    I don’t agree at all. That report suggests the US economy is nearing recession…………..starting in the service sector. Which would be the first since 1973. Basically corporate consumption has plunged, looking starting in December which has resulted in a actual decrease in full time jobs and goosed up part time/LFPR due to the breakdown in demand. This also decreased wage growth in that month which will be a feature as full time jobs contract.

    This bias with overhead NFP is going to get investors killed. I remember US industrial growth surging in 1974 and throughout 1957. Sadly, they ended up lagging the cycle and creating one huge inventory dump by the end of those recessions.


  3. Kevin says:

    Jared,

    I agree that the increase in payroll employment numbers are encouraging, but I can’t agree that we are nearing anything close to full employment. Male labor-force participation rates have been trending down for decades. The official U3 and U6 numbers are pathetic underestimations. The only reason to deny it is because Donald Trump thinks the real numbers are higher.

    I’m sure that you know that some serious scholars have been estimating ranges for the total amount of un- and underemployment that may be closer to Trumps view. In “Men Without Work,” by the AEI’s Nicholas Eberstat, has a figure of 10.5 million more men without jobs than would be the case if age specific work rates had held steady since 1964. Andrew Yarrow of the Progressive Policy Institute’s book “Man Out” (which I am still slogging through) puts the top end of the range close to 20 million non-working men. In both cases, particularly Yarrow’s, a large number of men have left the labor force for reasons other than lack of labor demand. But those numbers do not include women, in part because it’s harder to estimate their desired labor-force participation rates. Of course, we have the recent work by ProPublica and the Urban Institute shows more than half of older U.S. workers are pushed out of longtime jobs before they choose to retire. I won’t try to estimate a realistic range for the real numbers of un- and underemployed, but it’s far higher the U3 or U6. And like dark matter, this unobserved unemployment exerts a downward gravitation force on wages.

    A coalition of business groups and progressives want to maintain the myth of impending labor shortages (or that labor shortages are even a problem). Business wants to keep wages low. Progressives need to justify open borders.

    Your contention that “we’re closing in on, but not yet at, full employment” is off the mark.


    • Fred Donaldson says:

      Women are more likely – on average – to keep low-paying jobs because many are single mothers, whereas men are not. You don’t quit your low-paying job if it;’s the only way to feed your family. Instead, you get an additional PT job, raising the employment rate, but misleading the statisticians once again.


  4. urban legend says:

    All this optimism just brushes aside troubling contrary evidence, in particular the still-anemic employment rate. That’s frquently tossed off as a product of more people retiring or just fewer people wanting to work, but that is a “supply side” explanation that doesn’t make sense: the size of the workforce is not a product of how many people want, but how much demand for labor the economy is generating. The current rate is still about four percentage points behind the high point in 2000, amounting to about 10 million potential workers not working. (And there’s no reason to think that was some unrepeatable high point.) The argument that it is more people not wanting to work is also belied by what has happened in other wealthy Northern European countries (and Canada), where employment rates rebounded smartly from the (shallower) Great Recession and in many cases are at all time highs. The cultures of these societies — the only conceivable well of anti-work sentiment among working age adults — are not that different. This data — and some others, like high long-term unemployment and involuntary part-time — strongly suggest we are not even close to full employment


  5. Fred Donaldson says:

    We have median wages, average wages, household income, but no percentage of the workforce that is at a living wage for a couple (let alone with children). Goal in many countries is to provide a single wage earner with enough resources to get married and have children without going bankrupt because of healthcare or senior care. I don’t know how this would be calculated, but its change over time would be a real indicator of progress for the average American family.


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