US Job Numbers Surged in February, but Wage Growth Plateaued

The February employment figures from the Bureau of Labor Statistics, released on Friday, depict a strong labor market, with the US economy adding 313,000 jobs: the largest monthly increase since July 2016 and extending the longest recorded labor market expansion in US history into its 89th month. Job growth figures were also revised upward for December and January by a total of 54,000. The unemployment rate held steady for the fifth month straight at 4.1 percent, the lowest rate since December 2000.

Economists had expected growth of around 200,000 jobs. Some observers attribute the spike in hiring to the massive corporate tax cut passed by Congress in December, but this is not a consensus view, the Washington Post reports:

“This is a result of fiscal stimulus — in other words: a $1.3 billion tax cut,” [Glassdoor chief economist Andrew Chamberlain] said. “Businesses are making decisions on a forward-looking basis. Even if the dollars aren’t in the pockets of companies yet, they’re making plans.”

Cathy Barrera, head economist at ZipRecuiter, an employment site, questioned that interpretation, asserting it’s still too early to see an impact from the tax measure. “Really for businesses, what matters is demand for their products,” she said. “If demand for products hasn’t gone up, there’s not more work for these companies to be doing.”

The only piece of not-so-great news in Friday’s jobs report was that February did not deliver the acceleration in wage growth that many economists were hoping for. Average hourly earnings for private nonfarm employees rose by 4 cents to $26.75, for a year-over-year figure of 2.6 percent, lower than the 2.9 percent figure reported for January (revised downward in this month’s report to 2.8 percent).

The combination of large job growth and low wage growth was reassuring news for Wall Street, the New York Times adds, as it points to continued economic expansion but eases fears of runaway inflation:

“I love it,” said Ellen Zentner, chief United States economist at Morgan Stanley. “We saw a flood of job seekers into the market. We were able to create enough jobs to accommodate new seekers and keep the unemployment rate steady.” Stocks were up nearly 1 percent in morning trading on Friday. …

Although the drop in year-over-year wage growth to 2.6 percent is a bit disappointing to workers, the lower figure eased concerns about inflation. And as Ms. Zentner pointed out, “the upward trend remains in place.”

That wages are rising so slowly despite the low unemployment rate suggests to some economists that there is more room for continued growth in the labor market than traditional economic models would suggest. The US labor force grew by 806,000 in February, but total labor force participation remained little changed over the year at 63.0 percent. That the labor market is still adding jobs and pushing wages up only modestly bolsters the argument that the Federal Reserve can allow unemployment to fall even lower without overheating the economy, the Washington Examiner reports:

The lack of wage pressure “shows the economy can expand and heat up a lot more, and give the workers the opportunity to enjoy the expansion,” said Robert Frick, corporate economist with Navy Federal Credit Union, who noted that wage growth has been much stronger at the same point in previous recoveries. “It would be a shame for the Fed to get too aggressive in raising rates, and choke off or slow down that expansion before workers get a chance to participate in the economy growth.” …

This week, Fed governor Lael Brainard suggested that it was an “open question” how many working-age people might be tempted back into the labor force if the Fed were to allow the unemployment rate to keep dropping. Recent history suggests that there could be many.

Indeed, the unusual behavior of the labor market has led many economists to rethink abandon the once-integral concept of the Nairu, or the non-accelerating inflation rate of unemployment, as the Times’ Neil Irwin pointed out last week:

“It’s not a terribly useful tool right now,” said Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve. “For it to be useful you have to have at least a little confidence you know the number. You don’t need to know it to two decimal places, but within a reasonable range. If your range is 2.5 to 7, that doesn’t tell you anything.”

In the mid-1990s, when Mr. Blinder was at the Fed, he and Janet Yellen, then a Fed governor, tried to persuade the chairman Alan Greenspan that interest rate increases were needed because the unemployment rate was quickly falling below estimates of Nairu in the 6 percent and higher range.

Mr. Greenspan won the argument, as he almost always did at the Fed in that era. And with hindsight it seems he was correct. Unemployment kept falling through the late 1990s, and reached as low as 3.8 percent in the spring of 2000, without evident flares of inflation pressure.