Wonkblog | Analysis
September 7, 2018 at 4:11 PM
It certainly isn't the best of times or anywhere close to the worst of times, but the latest jobs report still told a story of two slightly different economic recoveries — or at least one that's reaching a turning point.
On the one hand, if you like good news, there was plenty of it. The 201,000 jobs the economy added in August were almost exactly as many as were expected, which is quite strong for a recovery that's this long in the tooth. Indeed, if you were auditioning for the role of a Fox News host, you might point out that we've added slightly more jobs in the last year — an average of 194,000 a month — than we had at this point of 2013 (an average of 191,000 a month).
Sure, that's highly misleading considering that Republicans just gave President Trump a big fiscal stimulus, after having forced a big austerity package on President Barack Obama five years ago. But it's still fairly remarkable when you consider that unemployment is 3.9 percent right now vs. 7.2 percent then. Job growth is supposed to be faster when more people are looking for work — when unemployment is high. So even if you discount some of this, as you should, the point is that the economy hasn't lost a lot of momentum even as we've gained a lot of jobs.
Even better, though, is that workers might finally be starting to get the kind of raises you would expect in this economy. For a long time, this has been the recovery's Achilles’ heel: We've added a lot more paychecks, but they haven't been much bigger ones.
Part of that, as former Obama adviser Jason Furman points out, is the result of lousy productivity growth, and another part is the result of low inflation. But the rest of it is something of a mystery. Wages are supposed to go up more when unemployment is low because workers should, in theory, have more bargaining power then. But that hasn't really happened.
Well, at least until now, maybe. After bouncing around the same level for the past two years, wage growth just hit a post-crisis high of 2.9 percent. The usual caveats apply — these numbers are noisy, and this might be a blip instead of the beginning of an upward trend — but it's more than we've had to go on for a while now. Even if it's barely enough to keep up with inflation.
On the other hand, there were a few dark linings in the Friday unemployment report to what was an otherwise silver cloud.
As impressive as job growth has been the last year, it has slowed in the past few months. Again, this might be nothing. But the jobs numbers for the previous two months were just revised down by 50,000. Those revisions, the St. Louis Federal Reserve has found, tend to be pro-cyclical: up when growth is up, and down when growth is down. It could be, then, that the sugar high from Trump's $1.5 trillion corporate tax cut is starting to fade. Or that there aren't as many people who don't have jobs who still want them. Or both.
The fact that the labor force just shrank by 469,000 — this was the negative reason the unemployment rate stayed stable at 3.9 percent — combined with rising wages certainly suggests that we might be getting close to the semi-mythical land of “full employment.” The idea being that if higher pay isn't enough to induce people to get off the sidelines, then maybe there aren't that many of them left. That might seem hard to believe when the share of 25-to-54-year-olds who should be in the prime of their working years and are in fact working is still below where it was before the recession began or even just a few months ago. But we can't rule it out. In the case of full employment, growth would naturally slow down and then slow down some more when the Fed raised rates to keep inflation in check.
So the recovery that we've gotten to know and grudgingly respect — if not quite love — for the past nine years might, just might, be entering a new phase: slower growth, higher wages and few people unable to find work. The labor market might finally be escaping the long shadow that the Great Recession has cast over it the past decade. Whether this is a smooth transition or a rougher one ultimately depends on the Fed. It might need to hike rates a little more aggressively than it planned to keep inflation in its Goldilocks zone, but not so fast that it will knock the economy out of its own safe spot.
That's when we'll find out if slow and steady really does win the race, or if we go a whole recovery without wages catching up.