The nation’s employment rolls went up 209,000 last month, and the unemployment rate ticked down slightly to 4.3%. The underlying pace of job gains, shown below, suggests a solid, healthy labor market characterized by strong employer demand for workers. That said, wage growth remains remarkably subdued. Taken together, these two facts imply that while we’re closing in on full employment, we’re not there yet.
To get at the underlying trend just mentioned, our jobs-day smoother takes some of the noise out of the jumpy monthly data by averaging job gains over 3-, 6-, and 12-month periods. There’s been a slight acceleration of job growth over the past three months, but broadly speaking, net payrolls are rising at a rate of between 180-190 thousand over the past year. That’s strong enough job growth to continue placing downward pressure on the unemployment rate.
Typically, downward pressure on unemployment means some degree of upward pressure on wage growth. But as the next two figures reveal (average hourly wage growth, yr/yr, for all and non-supervisory—blue collar and non-managerial—workers), while nominal wage growth initially caught a buzz, rising from about 2 to around 2.5%, it’s gotten stuck at 2.5 (a bit lower for the mid-level workers) and hasn’t accelerated further even as the job market has continued to tighten.
One explanation for this lack of correlation is that the job market still has some slack, and that’s suppressing the extent of worker bargaining clout that we’d historically associate with the low unemployment rate and steady, sizable monthly gains we see in these data.
In that spirit, this is a good time to evaluate a spate of slack measures. Here’s a list of “where they were at their trough and where they are today” for some key labor market indicators:
–Monthly job losses/gains have swung from an average monthly loss of 773,000 in the first quarter of 2009 (i.e., your worst nightmare) to an average gain of 195,000 over the last three months.
–Unemployment fell from a high of 10% in Oct of 2009 to 4.3% last month.
–Underemployment fell from a high of 17.1% in April of 2010 to 8.6% last month.
–Involuntary part-time work has fallen from 9.2 million in September of 2010 (6.6% of employment) to 5.3 million in July (3.4% of employment), slightly down from where it was in June.
–The closely watched labor force participation rate is up from a low of 62.4% in September of 2015, but only moderately, ticking from 62.8% in June to 62.9% last month, which is back to where it was at the beginning of 2017. Some of this represents aging boomers leaving the labor force, but some represents ongoing slack.
–That “slack” point re labor supply is underscored by looking at the prime-age (25-54, so few retirees in there) employment rate, which climbed from a low of 74.8% in November of 2010 to a post-recession high of 78.7% this month (up from 78.5% last month); it is now over 70% of the way back to its January 2007 level, 80.3%.
So, clear evidence of labor market tightening, but, at least as far as the prime-age workers go, still some potential labor supply to be tapped.
Sticking with the wage theme for one more moment, clearly the so-called wage Phillips Curve—the correlation between wage growth and the level of unemployment—must be very flat. The next figure takes a little work to absorb but it’s really worth it, IMHO (h/t to its creator, Ben S!). The figure plots unemployment against the annual change in average hourly earnings for blue-collar and non-managerial workers, basically mid-level earners (each data point represents a different month). During the 1990s recovery, a period of chock full employment when real wages grew solidly across the pay scale, you clearly see the expected negative slope. But in this recovery, it’s flat as a pancake.
As I said, that’s partly remaining slack, but there are other factors in play. One hypothesis is that the combination of high inequality and low productivity is part of the problem. Productivity growth is much slower now than in the latter 1990s, when wages were more responsive to labor market tautness. That meant employers could provide wage gains and still maintain their profit margins. With output per hour growing more slowly, in tandem with worker bargaining power that’s still too weak, employers are keeping profit margins up and holding down the growth of pay packets.
I’ll have more to say about the sectoral job changes in July later—running off to play some chin music on MSNBC around 10:30. Manufacturing employment is up a touch in recent months—28K jobs over the past two months—possibly reflecting the benefits to the sector of the falling dollar, though it’s too soon to tell if this is a new, improved trend.
Finally, need I say, I strongly recommend you assiduously ignore any president who argues that his awesomeness is behind these job gains (though he’d be far from the first to claim such credit). This momentum was fully in place before Trump got here, and the best I can say for him is that he hasn’t screwed it up…yet.