U.S. economy rebounding with solid, if unspectacular, job gains
The U.S. job market rebounded in April, the government said Friday, helping to ease worries that the economy was on the brink of another extended slowdown after a bleak winter. But the growth in jobs failed to translate, once again, into any significant improvement in pay.
Employers added 223,000 positions last month, the Labor Department reported, and the unemployment rate decreased to 5.4 percent, a turnaround from the disappointing performance in March, initially reported as a modest 126,000 gain and then revised down Friday to 85,000.
“We expected a rebound following the numbers in March and we got it, but not much more,” said Guy Berger, U.S. economist at RBS. “Wage growth is still the missing piece.”
Even though payrolls have risen at a healthy pace recently — averaging gains of 243,000 positions per month since the beginning of 2014 — a real raise for most workers has been elusive.
As the unemployment rate has dropped, many economists have kept predicting that substantive pay increases would come soon. But as long as wage gains remain just around the corner, their absence is expected to fuel increased public frustration and become a central issue in the presidential campaign.
Before Friday’s report, some economists were estimating that average hourly earnings might rise 0.2 percent or more in April, signaling an upswing from the slow pace of wage gains since the end of the recession. But average hourly earnings rose only 0.1 percent in April, producing a 2.2 percent annual gain. That modest showing suggests that any meaningful wage gains for most workers are still delayed, despite the steadily falling unemployment rate.
Conservative critics of President Barack Obama’s economic policies cite stagnant wages as evidence of how weak the economy remains, despite other seemingly rosy data points like the falling unemployment rate, healthy corporate profits and a buoyant stock market.
Eyes on the Fed
But the course of the economy over coming months will be shaped largely by the Federal Reserve, and the lack of wage pressure means the central bank will not be in a rush to take its long-awaited first step in raising short-term interest rates, which have been near zero since late 2008.
Many experts once expected the Fed to move in June, but the consensus has recently shifted to September or beyond as the probable beginning of any gradual tightening effort by the central bank.
“All things considered, any lingering possibility of a June rate hike from the Fed is now off the table, with September probably the most likely liftoff date now,” said Paul Ashworth, chief U.S. economist for Capital Economics, a research firm.
Berger agreed that if monthly job gains could be sustained at this pace, the Fed would probably act at its September meeting.
If the coming months bring similarly strong numbers, “the Fed will probably feel comfortable raising rates in September,” Berger said. “Wage growth isn’t a precondition to raising rates, but they want some confidence that it is on the way.”
The prospect of steady hiring without the risk of inflation brought by rising wages, leaving the Fed in a wait-and-see mode, is welcome on Wall Street, even if it’s a cause for concern among voters and politicians. In trading Friday, major market indexes were up nearly 1.5 percent, while 10-year bond yields eased slightly.
Adding to the mystery of missing wage growth is the fact that the composition of new jobs has improved markedly, a reversal of what was the case early in the recovery.
In April, higher-wage sectors like professional and business services and construction were big winners. Lower-paid categories like retailing and leisure and hospitality were less robust.
One notable loser in April was the energy industry, which has been stung by the sharp decline in oil prices since last summer. Energy prices have ticked higher recently, as have gasoline costs, but energy companies continued to shed workers, cutting more than 10,000 jobs in April.
At 5.4 percent, the headline unemployment rate is down sharply from nearly 8 percent two years ago and experts say it could fall below 5 percent by the end of the year if hiring continues to gain steam. But the broadest measure of unemployment, which includes people forced to take part-time positions because they cannot find full-time work, remains high for nonrecessionary times at 10.8 percent.
At the same time, millions of workers have given up the search for jobs entirely and dropped out of the workforce. Although it ticked higher to 62.8 percent last month, the labor participation rate has been stuck for years near multi-decade lows.
For Fed policymakers, the central question is whether most of those missing workers have disappeared because of longer-term demographic forces like the retirement of the baby boomers or whether many are still waiting in the wings and will return to the job market as employers reach beyond the pool of the existing workforce. Before letting interest rates rise to a level in line with historical norms, the policymakers want to see evidence that the labor market slack that built up during the recession and a long but fitful recovery is finally receding.
While it would certainly be good economic news if more of those discouraged workers returned to the labor force and landed jobs, one possible consequence would be a continuation of slow wage growth, said Tara Sinclair, chief economist for Indeed.com, a leading job search engine.
“There’s still slack,” she said, noting that unless employers are forced to compete for candidates to fill jobs, they face little pressure to substantially increase salaries.
Nelson D. Schwartz,
The New York Times