April jobs report well below expectations, second month in a row

Steve Benen has the April jobs report, Unemployment drops, but job growth falls short of expectations:

[W]hile it’s true that the job market looks healthy, the latest figures aren’t worth getting too excited about. The Bureau of Labor Statistics reported this that the economy added 168,000 jobs in April, well short of expectations, while the unemployment rate dropped to 3.9%.

While the 168,000 total is underwhelming, the 3.9% jobless rate is the lowest since before the Bush/Cheney administration took office.

[It was the 91st consecutive month of gains, far and away the longest streak of increases on record.]

Meanwhile, the revisions for the two previous months –February and March – didn’t change too much, and pointed to a combined gain of 30,000 jobs as compared to previous BLS reports.

In terms of the larger context, this morning’s data points to 799,000 jobs created so far in 2018, which is up a bit from the totals we saw in the first four months of 2016 and 2017, but short of the totals from the first four months of 2014 and 2015.

Here’s another chart, this one showing monthly job losses/gains in just the private sector since the start of the Great Recession.

Economist Jared Bernstein adds more details, April Jobs: More moderate than strong, with no wage acceleration.

Today’s employment report revealed labor market gains that were more moderate than strong. The unemployment rate fell to 3.9%, an 18-year low, but this was mostly due to a tick down in the labor force. Employment gains, at 164,000, came in slightly below expectations for 190,000, though the prior two months’ gains were revised up by a cumulative 30,000. Wages grew 2.6% for the third month in a row; this continued lack of acceleration is one indicator that some labor market slack remains.

That said, the labor market is still clearly closing in on full employment with sizable, steady month gains. To boost the signal-to-noise ratio in these noisy monthly data, our smoother shows average monthly gains over 3, 6, and 12-month periods. These are all clocking in at around 200,000, which should be enough to continue pushing down the jobless rate.

The wage story told by these monthly reports continues to underwhelm. Despite persistently low unemployment, as the figure below reveals, wage growth on a yearly basis, before inflation, has been stuck in the mid-2’s for about two years. In a truly tight labor market, more wage pressure would be visible in this series, the inverse of the sharp decline in wage growth during and after the downturn.

To be clear, recessions typically whack nominal wage growth more sharply than recoveries boost them: nominal wages take the elevator down and the stairs up. But the gradual gains in 2015-16, from about 2% to 2.5% ceased around mid-2016, even as the job market clearly tightened further. Other dynamics are in play here, including people entering and leaving the job market (lower-wage workers coming into the job market can reduce the pace of wage gains); some other series show better wage outcomes than this one. But even given these considerations, this indicator should definitely be taken as a signal that some slack still exists in the job market.

It is also worth noting that consumer inflation has been running just slightly below this level (2.4%, year-over-year, in March), meaning paychecks are running just slightly ahead of price growth.

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[There is] some potential extra labor supply to be pulled into the job market. There is, however, the caveat that some of these workers face significant barriers to joining even a pretty hot job market, including health/skill deficits, criminal records, and long periods of joblessness. Others dwell in areas where job availability is still too low. So, along with continued tightening of the job market, other interventions, including training, apprenticeships, and direct job creation, will be needed to help them overcome these barriers.

Turning briefly to sectors, manufacturing employment posted solid gains of 24,000 in April, mostly in the higher paying durable goods part of the industry. According to BLS, “Over the past 12 months, manufacturing has added 245,000 jobs, with about three-fourths of the growth in durable goods industries.” Since these solid gains in an important industry partially relate to exports, they underscore the importance of avoiding unnecessary disruptions in our trading regime.

Other services, including office work and health care, continue to post moderate to solid gains, but retail jobs continue to struggle due to competition with online sellers. Retail stores added just 2,000 jobs last month and only 72,000 over the past year, a gain of just 0.4%. In comparable periods of previous expansions, retail jobs typically grew 1-2 percent.

Finally, the Federal Reserve is, of course, closely scrutinizing these data for guidance as to the pace of their rate hike, or “normalization,” campaign. As the figure below shows, unemployment has long been below their target/”natural” rate. The figure also plots their preferred inflation measure which has tilted up of late and is just about at their 2% target. However, this target is a symmetrical one and the fact that they’ve been below for almost every month in the graph, along with the stable wage growth results discussed above, argues for patience.

The job market remains solid, and while this report was more moderate than strong, this is to be expected as we close in on full employment. We’re testing, to some degree, the extent of slack left out there in the US job market. However, as long as price growth remains around 2% and wage growth is not accelerating, our best play by far, on behalf of working Americans, is to let this experiment continue.

Paul Krugman dives deeper into the wage issue, Is the Great Recession Still Holding Down Wages? (Wonkish)

[W]age growth remains restrained, well below pre-crisis levels:

What’s going on?

One answer is that the official unemployment rate is misleading as an indicator of economic slack, and/or that structural changes have shifted the Phillips curve. This could be true; but there are a lot of stories about firms complaining that they can’t find workers. So why aren’t they just raising wages?

OK, here’s one hypothesis: it’s partly about downward nominal wage rigidity . . . Until the Great Recession, most economists believed that this constraint, like the zero lower bound on interest rates, wasn’t that important in practice. But during the recession and aftermath, downward nominal wage rigidity became binding for a large share of the work force.

But that explains why firms didn’t cut wages when unemployment was high. How does it explain why they won’t raise wages now that unemployment is low again?

OK, here’s my theory about the brontosaurus, I mean, about wages. What employers learned during the long slump is that you can’t cut wages even when people are desperate for jobs; they also learned that extended periods in which you would cut wages if you could are a lot more likely than they used to believe. This makes them reluctant to grant wage increases even in good times, because they know they’ll be stuck with those wages if the economy turns bad again.

This hypothesis also explains something else that’s been puzzling me: widespread anecdotes about employers trying to attract workers with signing bonuses rather than higher wages. A signing bonus is a one-time cost; a higher wage, we now know, is more or less forever.

If there’s any truth to this story, the protracted economic weakness that followed the financial crisis is still casting a shadow on labor markets despite low unemployment today.