For the first time in a long time, the recovery looks as if it might be starting to sputter a little bit.
Everywhere you look, after all, there has been less-than-stellar news recently. Consider the fact that the economy not only added a 75,000 jobs in May — 180,000 had been expected — but also that, after the latest revisions, it turns out it added 75,000 fewer jobs than we had thought in March and April. Or that the share of 25-to-54-year-olds who should be in the prime of their working years and are in fact working didn’t improve, either, last month and hasn’t for the past seven now. Or that, on top of all that, wage growth has slowed from where it was at the beginning of the year.
All of which is to say that if this has been the little recovery that could — chugging along at pretty much the same pace through fiscal cliffs and European debt crises and Chinese slowdowns — it might not be long until its I-Think-I-Cans turn into No-It-Can’ts. That, at least, is the story the data is telling us. It would be one thing, you see, if job growth was slowing down at the same time that wage growth was picking up. That’s what we would expect to happen once pretty much everyone who wants a job has one, which you would be forgiven for thinking might be the case when the unemployment rate is at almost a 50-year low. That, though, isn’t what we’re seeing. Instead, we’re getting slightly weaker job growth in conjunction with, yes, slightly weaker wage growth. Now that doesn’t mean a recession is imminent or even inevitable, but it does tell us two important things: first, that the recovery needs a little more help right now; and second, that the unemployment rate can still go a little lower if we do provide a boost.
None of this should be that surprising. Why is that? Well, the important thing to understand is that there are two jobs reports each month: one that asks businesses how many spots they’ve added or subtracted, and another that asks households how many of them are working. We use only the first one for the official jobs number, though, because, while they’re both pretty noisy, the second one is teenagers-about-to-get-the-cops-called-on-them loud. Nonetheless, the reports should be pretty close together if you look at them over long enough periods of time, because they’re supposed to be measuring the same thing. Which, as you can see below, is usually true but hasn’t been lately. The business survey says that job growth has decelerated from the 230,000 jobs a month it was last year to about 175,000 now, while the household survey shows a much more drastic decline to 75,000. In fact, it says we’ve added 64,000 jobs — in total — the past four months.
The point isn’t that things are as bad as the household survey has been saying, but rather that they aren’t as good as the business survey has. The truth, as always, is somewhere in the middle. Which is why we should have expected the business survey numbers to regress to about where they are now. Bond investors, for their part, certainly did. By pushing long-term borrowing costs below short-term ones, they’ve been signaling that they think the Federal Reserve is going to have cut interest rates soon to fight off what they fear might be an incipient slump. Part of that is about Trump’s trade war, but the rest is just a feeling that even though interest rates are still low by historical standards, they might not be by our current ones.
For a long time, you could tell yourself that this was over-the-top pessimism. Now, though, it might just be regular pessimism — if even that.