The news provides more evidence that the US macro trend is off to a sluggish start in the second quarter, but it’s premature to assume the worst via today’s data. The labor market’s expansion has been decelerating this year, but for the moment the downshift doesn’t exceed the low points of the last several years. In short, we’ve been here before and without sinking into a new recession. Will it be different this time? No one knows, but the worst you can say at the moment is that we’re knee-deep in another soft patch that may or may not lead to a new downturn.
On the plus side, private payrolls are still growing at a healthy annual rate, rising by nearly 2.2% in April vs. the year-earlier level. That’s a robust trend… if it holds. The problem is that the annual pace has been edging lower for much of the past year. But let’s recognize that the slowdown is unfolding in slow motion, which implies that a sharp slide is nowhere on the horizon. In other words, the bigger concern at the moment is less about the economy slipping into a new NBER-defined recession vs. weak growth that becomes even weaker over an extended period of time. That may turn out to be an irrelevant distinction, depending on your personal finances and career path. In any case, the game of looking for a clear and distinct start to a new recession may fade into the mists of a post-2008 realm of warm and fuzzy macro trends subsumed by slow growth and unsatisfying job opportunities.
The jobs number is naturally volatile from month to month. So it's best to look at the change over several months or even a year. On a year over year basis, private sector jobs rose 2.2%; over the past six months, they are up at a 2.1% rate, which is about what they have averaged since mid-2011. Nothing much has changed.
What has changed is the growth of the labor force, which has picked up of late. That explains why the unemployment rate has stopped declining: on the margin, more people are deciding they want to work. This is a positive development.
Although the headline number for job creation was below expectations, this was still a decent report. Some positives include more wage growth (see below), fewer part-time workers for economic reasons, fewer long-term unemployed, and a decline in U-6 (an alternative measure of underemployment).
However, though this slower pace could represent a downshift in the rate of job creation, it is far too soon to jump to that conclusion. These monthly numbers are jumpy and require averaging a few months’ gains to get at the underlying trend. In fact, the monthly trend over the past three months is precisely 200,000, as shown in my monthly smoother below. So, even while one can point to other slowing indicators, especially the 0.5% GDP growth in the first quarter of the year, do not assume the job market is softening.
The rest of the report provides indicators that bounce both ways. On the soft side, the slipping of the labor force participation rate was a real disappointment and a reversal of a recent upward trend in this closely watched metric of movements in and out of the labor force (see figure). After rising from a low of 62.4% last September to 63% in April, the LFPR ticked back down in May to 62.8%. That’s still significantly off its lows, and again, the monthly numbers are jumpy, but this was the number I liked least in today’s report, especially since the same 0.2 percentage point decline was seen among prime-age workers, meaning the drop can’t be pinned on aging retirees.
On the other hand, both average hourly wages and weekly earnings continue to beat (very low) inflation (weekly hours ticked up slightly last month), with both earnings measures up 2.5% over the past year, while inflation’s running around 1%. Importantly, from the Fed’s perspective, even while the job market is tightening, the extent of wage acceleration remains mild. Essentially, average wages from the establishment survey have climbed from around 2% growth in the first half of last year to around 2.5% this year. That’s what we’d expect in an improving job market and a pace that remains below the 3-3.5% Fed chair Yellen has suggested is “equilibrium” wage growth.
