US jobless rate declines but not enough increase in wages
Last time the unemployment rate stayed below 4 per cent for a sustained period was in the 1960s
The last time the unemployment rate fell below the 4 per cent threshold was in 2000, during a period of frenetic activity remembered as the dot-com boom.
Nine years into a sustained, if less feverish, economic recovery, that milestone has been achieved again.
The Labour Department said Friday that the jobless rate in April fell to 3.9 per cent, raising anew the question of just how tight the labour market can get, and for how long.
In the past half-century, only the late 1960s brought an extended period when the rate stayed below 4 per cent.
“We’ve continued to add jobs routinely every month for so long, and the unemployment rate we have reached is amazing,” said Catherine Barrera, chief economist of the online job site ZipRecruiter.
The steady-as-she-goes economy has produced a record 91 straight months of job growth. That may represent a healthier foundation than the dot-com era, when pride — or, as it was branded, “irrational exuberance” — went before a fall.
But the banner number announced Friday did not resolve any of the broader questions that economists have about this unparalleled run.
The most prominent is a mystery that has proved impervious to easy explanation: why wage increases haven’t been more robust, when the market continues to edge toward full employment.
Friday’s report showed that hourly earnings went up by 2.6 per cent over the past year, not much faster than inflation. The subdued wage gains eased the prospect that the Federal Reserve would accelerate its plans to raise interest rates, helping to send stocks higher. But lagging pay also reflects how the economy of 2018 is fundamentally different from earlier eras.
“A 3.9 per cent rate today doesn’t suggest as tight a labour market as 3.9 per cent in 2000 or 3.9 per cent in the late 1960s,” said Ellen Zentner, Morgan Stanley’s chief United States economist.
A lot has changed since the turn of the century. The share of working-age women in the labour force began to fall in 2000, after increasing for decades. Men have been dropping out for much longer. The upshot is that a smaller share of people are participating in the labour market, and it’s easier to get low levels of unemployment when fewer people are vying for jobs.
In fact, a shrinking labour force in April is part of why the unemployment rate fell to 3.9 per cent from 4.1 per cent even as payrolls grew by a fairly routine 164,000 jobs.
The population is also older than they used to be, on balance. The babyboom generation has moved steadily toward retirement over the last two decades. And those still working have not helped push wages up. Generally, workers climb the economic ladder fastest when they are young, and so an older work force may weigh on average wages, economists say.
In 2000, wages for rank-and-file workers rose at an annual rate of around 4 per cent. Part of the problem now is that some 60 per cent of the jobs added since 2010 have been in low-wage, service-sector jobs, according to Morgan Stanley.
Fifty years ago, there were plenty of factory jobs paying a decent wage, and unions held much greater sway. Manufacturing accounted for one in four jobs; today it’s not even one in 10.
The tech explosion of the late 1990s gave rise to lucrative roles in companies based on new business models. The share of the economic pie going to workers rose steadily for the first time since the 1970s — a feat not repeated since.
“No one is creating an e-commerce group out of nothing anymore,” said Tom Gimbel, chief executive of LaSalle Network, a Chicago staffing firm. Instead, companies are bulking up their warehouses to compete with Amazon, slotting in tens of thousands of relatively low-paid pickers, packers and stockers over the past several years.
Gimbel said he had seen a particular hunger for new bodies in call centres, which offer candidates the minimum wage to deal with consumers’ complaints about the gadgets they ordered online.
More recently, Trump’s flirtation with a trade war has thrust uncertainty into the economic picture. The White House has provided little clarity about whether its newly imposed steel and aluminum tariffs will extend to allies like Mexico, Canada and the European Union, and it seems no closer to smoothing over economic tensions with China. The data deluge that swept over the US economy since the middle of last week can be boiled down in one message: Lofty expectations, but more down-to-earth numbers.
Overall, the job market is going strong without overheating, while the economic expansion — which this month became the secondlongest on record — is on solid ground even with a soft start to the year that’s expected to give way to a tax-cut-driven rebound. The results amount to a wash for Federal Reserve policy makers, who skipped a rate hike at their May 1-2 meeting as expected.
The central bank remains on track to raise interest rates in June for the second time this year, and once or twice more after that in 2018.
Factories are hiring and struggling to fill robust orders. One standout in the jobs report was manufacturing payrolls, which in April had the strongest year-overyear gain since May 1998. The numbers tied in nicely with the Institute for Supply Management’s manufacturing survey released Tuesday, which showed solid-but-moderating growth. That index missed economists’ forecasts, and the group said factories are struggling to find the workers, supplies and delivery trucks needed to keep up with demand. The dynamic is creating price pressures and supply-chain disruptions, worsened by the U.S.-China trade spat.
Hiring at service providers was little changed in April at 119,000, according to the Labour Department figures on Friday. Some hint of that came in the ISM non-manufacturing survey released a day earlier, which also fell short of analysts’ forecasts.