April Jobs Report
…164,000 new jobs in April. Unemployment rate hits 3.9%. Wages flat. How low can we go? How is the labor market changing?
Financial Review by Sinclair Noe for 05-04-2018
DOW + 332 = 24,262
SPX + 33 = 2663
NAS + 121 = 7209
RUT + 19 = 1565
10 Y un = 2.94%
OIL + 1.36 = 69.79
GOLD + 3.40 = 1316.00
The economy added 164,000 new jobs in April, and the unemployment rate dropped to 3.9%, the lowest level in 18 years. Most estimates were forecasting 185,000 to 190,000 new jobs – so, it was just slightly below expectations but not a big miss; certainly not as bad as the March report, which initially came in at 103,000 and today revised up to 135,000. February’s report was also revised to 326,000, a gain of 2,000. Those are some pretty wild swings from month to month. The 3-month average comes in at 208,000 jobs per month – which is great growth. In April, the year-over-year employment change was 2.28 million jobs. April marked the 91st consecutive month of job gains, far and away the longest streak of increases on record. The average monthly gain has declined each year since 2014, but that’s normal for an economy that’s been in recovery for such an extended period.
The unemployment rate, meanwhile, slipped to 3.9% after holding at 4.1% for six months in a row. The unemployment rate alone doesn’t tell you all you need to know about the labor market. The decline to 3.9% owed to a shrinking labor force and fewer people looking for a job instead of an increase in how many people found work, as the labor force actually shrank by 236,000 Americans. The Labor Force Participation rate decreased in April to 62.8%. As the labor pool shrinks, it pushed the unemployment rate lower, but for the wrong reason. When unemployment falls because people get jobs, that’s good. But when unemployment falls because people give up looking for jobs, it’s not so good. Part of the reason for the shrinking labor force participation rate is an aging workforce. As the boomer generation moves into retirement, they are no longer actively counted in the labor force; for this reason, the labor force participation rate could dip even further.
The headline unemployment rate U-3 is now at 3.9%, and that is the lowest level since 2000, back when Bill Clinton was still president. In the last 60 years, there has been only one sustained period where unemployment stayed below 4 percent: the late 1960s. When the jobless rate hit these levels right before the dot-com bubble burst, the labor-force participation rate was significantly higher than it is today.
The U-6 unemployment rate decreased to 7.8% in April. U-6 is an alternate measure that considers unemployed plus underutilized workers, or people who are working part-time but would like full-time jobs. There are about 5 million people who fall into this category. There are 1.29 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.32 million in March. So, even though the U-6 unemployment rate dropped to 7.8%, the lowest level since 2001, there is still some slack in the labor market. It seems there were more workers on the sidelines than previously thought. For some groups, the labor market has been tougher. The unemployment rate for black workers, for example, has consistently hovered well above the rate for white workers, even as employers complain loudly about a labor shortage in sectors like construction and trucking. The job market has improved for black workers in recent years — they still faced a jobless rate of 6.6 percent in April, the lowest level on record. But it was still much higher than the 3.6 percent for whites. Differences in education or degrees don’t explain that gaping disparity, according to federal data.
Economists expect that low unemployment will lead to increasingly big pay bumps for workers as employers fight over a dwindling number of candidates. But this recovery has so far bucked that conventional wisdom. Wages increased by 2.6 percent over the past year, not much faster than inflation. Wages were up only 0.1% in April. Private nonfarm payrolls rose by 4 cents to $26.84 in April. Over the year, average hourly earnings have increased by 67 cents per hour. In the 1990s and early 2000s, the last time the job market looked like this, wages for rank-and-file workers rose at an annual rate of around 4 percent. At some point, employers will quit complaining about the lack of qualified workers, and they will start paying higher wages to lure qualified workers to jobs, but for now wages remain in a rut. Wage growth was less than stellar, putting the fears seen earlier this year of possible overheating inflation on the back burner. This also disrupts the narrative on the potential benefits of the tax cut where more generous pay had essentially been promised.
We are getting closer and closer to some magic level that might be defined as full employment, or what is called the “natural rate of employment – essentially maximum jobs without igniting inflation.
As unemployment drops, it is easy to infer that inflation would follow. When there are fewer available workers, they can demand higher wages to take new jobs. And all kinds of economists incorporate this argument into their work. It has been 18 years since unemployment was under 4 percent. As unemployment continues to fall, people wonder, how low could it go? There’s enough evidence the economy can function well with much lower unemployment without inflation spiraling that the Federal Reserve should “keep an open mind” about whether the natural rate even exists. Why can’t we have the unemployment rate below 3% without slamming on the brakes due to fears of inflation.
There is still slack in the market. Only 79.2 percent of Americans 25 to 54 were working in April, unchanged from March. That number was 81.4 percent the last time the unemployment rate was at its current levels in December 2000. That means that there are still around 2.3 million people in the United States of prime working age who might come back into the labor market if we were to match the standard from 18 years ago. What would it take to lure those people off the sidelines and into jobs? Higher wages would certainly be one motivating factor. On-the-job training would be another way to match people to high skill jobs. Part of the problem is geographic; there are still parts of the country where good jobs are scarce, even though that is not the situation on a national level. We need to be able to match workers to jobs and look beyond the local landscape if need be. It is not just a matter of the number of jobs being filled, but also the quality of the jobs and where those jobs can be found. If we can tackle some of those issues, the unemployment rate could dip even lower, and stay below 4% for an extended period. In other words, the labor market is about to undergo big changes. This could be a great time for employees who are able to step up their game. If businesses don’t want to be on the short end of labor shortages, they will need to offer more.
At Indeed.com, more jobseekers are looking for employers who will hire quickly and will not let a criminal conviction stand in the way. Searches for jobs hiring “immediately” rose more than tenfold in the first four months of the year over the same time frame last year, data provided to Reuters by Indeed.com showed. Searches for “felony friendly” rose nearly threefold. Other trending searches included “no degree required,” “no experience paid training,” and “now hiring full time,” suggesting a strengthening U.S. labor market is drawing in workers from the sidelines and encouraging people in less-than-ideal jobs to look for better ones. It is reflective of a workforce that is realizing there are opportunities in the job market. Data from ZipRecruiter showed a surge in employer postings for jobs requiring no experience, offering training, and welcoming felons to apply.
Why do we still have slack in the labor market? Part of the reason is because of the cuts following the Great Recession. An example can be found in recent teacher strikes and protests in West Virginia, Oklahoma, Kentucky, Colorado, and Arizona—all states that pay teachers at least $7,000 less than the national average salary of $59,660. There are a handful of motivators behind the protests: sub-par salaries, anxieties over pension cuts, and, perhaps most insidiously, dramatic reductions in states’ education funding over the past decade. Altogether, these pressures have left many educators feeling unable to do their job. It’s hard to teach when you have to pick up extra jobs to make ends meet, or when you’re stuck using 40-year-old textbooks. Those sacrifices are common under budget cuts, which inevitably mean states spend less on students. Twenty-nine states spent less on students in 2015 than they did pre-recession in 2008. The teacher strikes were about more than wages, they were also about workplace, and about the necessity of giving workers the tools to do their jobs and be productive. The strikes and protests were also a reminder that we are still digging out from the Great Recession. And that probably explains why we still haven’t seen inflation, yet.
Stocks logged sharp gains Friday, with major indexes shaking off an early slide as technology stocks rallied, (Apple closed at a record high) a breakdown in trade talks with China. Senior Chinese and American officials concluded two days of negotiations late Friday afternoon with no deal and no date set for further talks, as the United States stepped up its demands for Chinese concessions to avert a potential trade war. The American negotiating team headed for the airport after the talks and did not release a statement.