Popular Economics Weekly
Total nonfarm payroll employment increased by 164,000 in April, and the unemployment rate edged down to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, manufacturing, health care, and mining, with manufacturing contributing an oversize 24,000 to payrolls.
The unemployment rate slipped to 3.9 percent—a 17-year low—after holding at 4.1 percent, for six months in a row, said the BLS. The decline owed to a shrinking labor force and fewer people saying they were unemployed instead of an increase in how many people found work. The labor force actually shrank by 236,000, while the number of unemployed dropped by 236,000 in the Establishment (payrolls) survey.
The tight labor market is especially evident in what’s often called the “real” unemployment rate. The so-called U6 rate includes people who can only find part-time work and those who’ve gotten so discouraged they recently stopped looking. It fell to 7.8. percent in April to drop below 8 percent for the first time since 2006. The labor market is almost back to normal, in other words.
All signs say we are nearing the end of the second-longest growth cycle since the Clinton era’s 10-year 1991-2001 boom years I said yesterday; and once again a huge amount of debt has accumulated that ultimately has to be paid for.
Are we dangerously close to the end of this growth cycle, as the Fed tightens credit after years of easy money and consumers then cut back on their spending that powers some 70 percent of GDP growth?
The Fed passed on raising interest rates in this week’s FOMC meeting, mainly because there were few signs of inflation, which was backed up by today’s unemployment report. Hourly pay rose just 0.1 percent to $26.84. The 12-month increase in pay was flat at 2.6 percent for the third month in a row. But prior months were revised upward, at a net 30,000 gain in March and February. Payroll growth includes a solid and slightly better-than-expected 24,000 gain in manufacturing with construction up 17,000, mining up 8,000, and professional business services up a sizable 54,000.
The good news there are still 5.0 million jobseekers working parttime and want to work fulltime, and an additional 1.4 million that have looked for work in the past 12 months, but not in the past 4 weeks.
The private service-sector contributed the most jobs as usual—119,000, with professional and business services up 54,000 jobs, and education and healthcare contributing an additional 31,000 to the total.
Business investment and exports are rising, but should be rising faster with the new tax bill, according to New York Times Paul Krugman:
“Anything that increases the budget deficit should, other things being the same,” says Krugman, “lead to higher overall spending and a short-run bump in the economy (although there’s no indication of such a bump in the first-quarter numbers, which were underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.”
So what is normal at this late stage of the business cycle? Wages aren’t yet rising fast enough to warrant a more hawkish inflation watch by the Fed, but they ultimately will as even fewer new workers are available, so that companies have to pay more for skilled workers, as well as invest more in automation to keep growing.
But we still have all that new public debt to worry about, so interest rates will continue to rise to finance the additional debt, until it crimps further business expansion; as always happens at this stage of a business cycle. So stay tuned!
Harlan Green © 2018
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen