The headlines write themselves: The unemployment rate has just fallen to an almost 50-year low of 3.6 percent, the economy has now added jobs for a record 103 straight months, and while wage gains are still slightly muted at only 3.2 percent over the past year, the largest of them are at least going to people with the lowest incomes.
This is all undeniably good — no, great — news that’s been a long time coming. As in, it’s taken our slow-and-steady recovery a full 10 years to get us to the point where we have undone most of the damage from the Great Recession.
That said, though, there were still a few dark linings to this otherwise silver cloud. Chief among them was the fact that while businesses said they added a very robust 263,000 jobs last month, households actually told us that 103,000 fewer of them were working then. These numbers, as you might expect, are usually pretty close to each other, since they’re supposed to be measuring the same thing. (The reason we bother calculating both is we use the first one to give us the official jobs number, and the second to come up with the official unemployment rate). Anytime there’s a big discrepancy between the two, then, it tells us that things probably aren’t as rosy as they might appear. Which is particularly bad news when this is the second time this has happened in as many months. Indeed, the business survey tells us that we added 452,000 jobs in March and April, but the household one says that we lost 304,000 jobs during that time.
So it wouldn’t be a surprise, considering that these things have a way of evening out, to find out that the economy was really adding somewhere around 150,000 jobs a month instead of the 200,000 we’ve been used to for so long.
How is it possible, though, that the recovery might be slowing down when the unemployment rate just fell from 3.8 to 3.6 percent? Well, that makes more sense once you realize that it only happened for the “bad” reason that fewer people were looking for work rather than that more of them were finding it. Which, in turn, is why the broader unemployment rate that includes people who have taken a break from looking for work, or can only find part-time jobs and not the full-time ones they want didn’t change at all last month. In fact, it’s only down 0.1 percentage points the past eight months combined. Not to mention that the share of 25- to 54-year-olds who should be in the prime of their working years and are in fact doing so has stagnated a little bit. It just fell for the second consecutive month, bringing it back to where it was last October.
It’s important to emphasize that this doesn’t mean the recovery is in any danger of turning into a recession any time soon. But while things look as good as ever on the surface of the economy, there are a few potential problems lurking below. Which, when you think about it, is a pretty remarkable thing to be saying at this point of the business cycle. That’s because a lot of economists thought that the recovery would start to slow down on its own once unemployment got down to 4 or 5 percent, simply because there wouldn’t be enough new workers to keep it growing as fast — and that trying to keep it going beyond that would only turn into inflation. The idea that we could have an economy where prices are rising less than 2 percent, unemployment is less than 4 percent, and we’re still adding somewhere around 150,000 to 200,000 jobs a month would have seemed like a fantasy.
The question, then, is whether the whole idea that the economy would slow down once unemployment got below a certain point was wrong, or whether that point is just lower than we thought it was. And the answer is we have no idea. If you’re a glass-half-full kind of person, you might point out that not only is hiring still strong today, but also that wages are still low enough that there’s every reason to expect companies to keep adding just as many people tomorrow. And that whatever concerns there might be right now will turn out to be just another speed bump on the way to 3 percent unemployment in the never-linear process that is economic growth.
If you’re a glass-half-empty kind of person, though, you might say that there are already signs that the recovery might be starting to run out of steam, and that unemployment might not be able to get much lower than it already is.
But in either case, the good news is that the Federal Reserve isn’t taking the glass away. It’s letting the recovery run its course, and not making any assumptions about how far that might be. And why would it? The result of not doing so has already been an economy with unemployment at a half-century low. Who’s to say it couldn’t do even better than that?
There could be plenty of headlines still to come.