Unemployment across the US fell to 3.9 percent last month, its lowest level since December 2000, the latest jobs report from the Bureau of Labor Statistics showed, as the economy added 164,000 jobs. The increase in jobs was below the average monthly gain of 191,000 over the prior 12 months and the median estimate of 193,000 provided by economists to Bloomberg. However, job gains from the previous two months were also revised upward by a net 30,000 jobs. A broader measure of unemployment, including those marginally attached to the labor force or employed part time for economic reasons, fell from 8 percent in March to 7.8 percent in April.
Wage growth remained slow, however, with average hourly earnings rising 4 cents to $26.84, representing a 2.6 percent year-over-year-increase. That figure has dwindled from 2.9 percent in January, dampening hopes that the tight labor market would finally lead to accelerating wage growth for American workers. Nonetheless, Josh Wright, Chief Economist at iCIMS, tells the Washington Post that it’s “an exciting headline for the worker”:
“A real Goldilocks number, with job growth being great.” But pay stayed flat, so the Federal Reserve won’t likely feel pressure to raise rates before June. In other words, Wright said, the markets should respond favorably. “What we’re seeing here is steadiness,” he said. …
If the expansion further gains steam, analysts at the Fed said the unemployment rate could reach 3.7 percent this year, a figure not seen since 1969.
Also, the New York Times points out, “A year-over-year increase of 3 percent in hourly earnings is considered the trip wire that could prompt the Federal Reserve to raise its benchmark interest rate more aggressively than it has signaled”:
“Wage growth picking up would suggest the labor market is tightening and that the Fed could have to move more aggressively,” said Matthew Luzzetti, a senior economist at Deutsche Bank. Projections released at a Fed meeting this week suggested that officials were leaning toward a total of three rate increases this year. But strong wage growth could fan fears of an uptick in inflation, pushing them toward a fourth increase, Mr. Luzzetti said. “It means borrowing costs will be moving higher for typical consumers.”
Reading the tea leaves of the falling unemployment rate, the Wall Street Journal’s Nick Timiraos notes that most Fed officials still believe that a tighter labor market will eventually cause wages to rise in line with longstanding economic models. However, some fear that the labor market trend will have an even stronger impact on inflation, forcing the bank to raise rates and cool down the economy before wages have had a chance to recover. Still others suspect that the natural rate of unemployment is lower than the standard models dictate, such that wage growth won’t really kick in until unemployment falls further.
Sluggish productivity growth—an increase of 0.7 percent in the first quarter of 2018 was cause for modest celebration—may also be holding wages down. Another factor believed to be complicating the economic models is the historically low labor force participation rate, which ticked down in April from 62.9 to 62.8 percent. Some economists believe there are significant numbers of Americans among the long-term unemployed who could be drawn back into the workforce under the right conditions.