Job growth rebounded this month after a significant dip in March, easing fears that the economy may be weakening, and the unemployment rate remained steady at its lowest level in a decade.
Hiring picked up sharply in April with the Bureau of Labor Statistics reporting Friday morning that the US economy added 211,000 jobs. The unemployment rate inched down to 4.4%, with March job gains revised down to 79,000 from 98,000.
As the unemployment rate continues to drop, many economists believe the nation is close to full employment. April’s payroll numbers confirm that job growth is still continuing, but how much further hiring will increase remains to be seen. 78.6% of the prime working age population is now employed.
But there is still a shortage of skilled workers as well as plenty of long-term unemployed people who are waiting on the sidelines to jump back into the labor force, said Elise Gould, senior economist at the Economic Policy Institute
“This is exactly the same rate that we had at the lowest point in the last full business cycle in October 2003,” she said. “So yes, we have seen great advances over the last several years. But we’re not near the peak before the recession hit, nor the peak that we had in 2000.”
The continued lack of wage gains, another measure of labor market slack, are troubling to experts who see a disconnect between the consistent job growth of the last decade and earnings that have remained flat for most workers. Average hourly earnings were soft, up only 2.5% from this time last year.
Historically, when the unemployment rate drops below 6%, AHE rises proportionally, but that isn’t the case in the current business cycle.
“What’s interesting and bizarre is that when the unemployment rate was at 10%, the average hourly increase was 2.5% a year, so there’s something odd,” said Bernard Baumohl, chief global economist at The Economic Outlook Group.
“We’re in our eighth year with the jobless rate at a decade low and the employment population ratio is now the highest we’ve seen since 2009, so it’s hard to explain why we would have the same increase in average hourly earnings now than we had in 2009 when the unemployment rate was at 10%,” he said.
With consumer spending making up 70% of the economy, weak wage growth could have a powerful effect on economic growth by stymying consumer purchasing power. If inflation gradually picks up and prices rise while wages only see incremental gains, there could easily be a pullback in consumer spending, said Baumohl.
At Bagels and Brews, a small bakery in Queens, New York, manager Jose said they had to raise their prices for the first time in three years because the cost of goods has risen.
“The value of the things we sell went up so we have to charge more,” he said.
But the bakery also had to raise its employees’ wages. Its 14 employees used to make $8 an hour. Now because of New York State minimum wage mandates they are paying their workers $11 an hour and have managed to keep everyone on the payroll.
While business confidence in general has remained high due to anticipated deregulation coming from Washington, cracks in certain sectors are becoming apparent.
The continued influx of jobs comes at a time when previously vibrant sectors are struggling. Auto sales have dropped for the fourth month in a row, causing the market to react fearfully to what they consider a possible end to the prevailing economic boom. The job gains seen in manufacturing and construction have dipped back down as well, having peaked in early winter, most likely due to unseasonably warm weather. Retail sales continue to slog along after two consecutive months of decline in February (-0.3%) and March (-0.2%). Overall, the US gross domestic product has grown only 0.7% since the beginning of the year.
Despite these tentative economic conditions, job prospects are relatively strong for certain Americans, in particular college graduates. Unemployment rates for that group are now within 0.1 percentage points of where they were before the recession began. College graduates are entering the work force at a time when the service sector is expanding – industries like education, hospitality, business service and leisure are all adding jobs – and most notably, health care, which added 36,000 jobs this month.
The health care industry exemplifies the lingering disconnect between the skills offered and the skills needed for jobs today, which is causing many of the college students who can find jobs to be underemployed.
“I think we will see less high-paid, high-skilled doctors, technicians, anesthesiologists, surgeons in replace of more admins, more nurses, more physical therapists,” said Lindsey Piegza, chief economist at Stifel Fixed Income. “More middle and lower-level care givers, as opposed to high-level care givers.”
Regardless of the political firestorm surrounding health care in Washington and whether the Affordable Care Act becomes Trumpcare, Piegza is confident the health care industry will continue to lead growth in the labor market.
But other kinds policies that the Trump administration enacts could negatively affect hiring in some sectors. In the housing industry, builder confidence has been at a 10-year high since the President announced his intentions to ease environmental regulations because it would open up available land for building.
But the administration recently imposed an almost 20% tariff on Canadian lumber imports, which will most likely result in less homes being built because of higher material costs, said Steve Melman, director economic services at the National Association Home Builders.
“Every home that’s built generates about three jobs, and that’s a lot of jobs to cut back on,” he said. The National Association of Home Builders estimates that as many as 8,000 full-time US jobs and $498.3 in wages and salaries could be lost due to the timber tax.
But for now, the quality of this month’s jobs report was strong, said Mark Zandi, chief economist at Moody’s Analytics. Zandi isn’t worried about labor market indicators like wage stagnation and underemployment, but encouraged by increases in measures like hours worked – a good sign for future hiring – and believes that wage growth is actually accelerating consistently with the economy.
“I think when you’re creating a couple hundred thousand jobs a month – over two million per year – you’re creating all kinds of jobs,” said Zandi. “You’re creating part-time, full-time, low-paying, high-paying. I think the job market is creating a wide array of jobs that is consistent with a very healthy job market.
“The job train is moving down the tracks pretty quickly,” he said. “It all feels pretty good.”