The U.S. economy again defied expectations in April, as another month of strong hiring and falling unemployment forced experts to reevaluate just how good the economy can get — and how long the current expansion can last.
The latest piece of good news comes accompanied by strong wage growth, hot stock markets and a first-quarter growth report last week that smashed expectations. Equally noteworthy is what economists aren’t seeing: the high levels of inflation that have accompanied previous expansions.
As the economy continues to grow past what many predicted was possible, some analysts and officials are wondering if the current state of the economy is too good to be true — and that experts must be missing warning signs.
Some expressed concerns about rising debt after the Trump administration undertook heavy borrowing to fund tax cuts and additional government spending to boost growth. President Trump is actively pushing for more, including a $2 trillion infrastructure package, additional military spending and extra stimulus from the Federal Reserve.
But few, if any, deny the remarkable overall strength of the U.S. economy.
“ ‘Spectacular’ is the only way to describe this jobs report,” said Sung Won Sohn, an economist at Loyola Marymount University and SS Economics. “It is hard to believe that this 10-year-old recovery keeps pumping out home runs.”
Previous eras of such economic performance ended painfully. The prosperity of the 1960s was followed by runaway inflation in the 1970s; the long expansion of the 1990s burst along with the tech bubble; and the gains of the 2000s ended when a collapsing housing bubble spiraled into a global financial crisis and the worst recession in generations.
But so far during this era of growth, inflation has remained subdued, and most think financial-market risks are manageable.
In July, the economy’s expansion is set to become the longest in U.S. history, breaking the record from the 1990s. The widespread expectation was that hiring would slow at this point in the business cycle. But companies keep adding people, with sizable gains lately for women and some minorities. Hispanic American unemployment fell to 4.2 percent in April, the lowest rate on record. Unemployment among adult women is now at 3.1 percent, the lowest since 1953 and 0.3 percentage points lower than the rate for men.
While there are some signs of slowing — job growth this year is averaging 205,000 a month, down from 223,000 last year — the pace remains well above forecasts. And the abundance of “we’re hiring” signs and online job postings is luring people who weren’t necessarily looking for a job back into the labor market.
Average hourly earnings rose 3.2 percent in the past year, well above inflation. Lower-wage workers have enjoyed some of the largest gains as companies have scrambled to fill jobs and many states have raised their minimum wages.
How long the good times can last is a widely debated topic from the White House to Wall Street to corner stores.
“Can this economy be sustained or get better? The short answer is: We don’t know. It depends what happens with productivity growth,” said Joseph LaVorgna, chief economist for the Americas at Natixis, an investment bank.
Right now the vital signs look solid. Much of U.S. economic growth is driven by consumer spending, and people are expected to keep spending given that jobs are plentiful, wages are rising for many and optimism about the economy is at the highest levels since about 2000, according to Gallup polls.
“Expansions don’t simply die of old age. Something has to knock us away from full employment,” said Christina Romer, an economics professor at the University of California at Berkeley and the former head of President Barack Obama’s Council of Economic Advisers. “Right now the U.S. economy appears to be relatively stable.”
Numerous economists told The Washington Post that the most encouraging economic news this week was actually productivity, not jobs. Productivity — a measure of how much a worker can make in an hour — grew above expectations, at 2.4 percent in the first quarter compared with a year earlier, the best rate since 2010.
Productivity growth was anemic during the expansion over the past 10 years, with little sign of an uptick. Economists say a productivity rate above 2 percent should fuel strong growth and higher wages. But this critical metric is notoriously difficult to predict.
“You have to give the White House some credit on the productivity front. There’s been a clear change there,” said Doug Holtz-Eakin, an economist who advised John McCain’s presidential campaign. “It’s very encouraging, but you can’t celebrate too soon.”
The White House cheered the news as evidence that Trump’s policies are working. At the same time, the president continues to call for more stimulus, a highly unusual move at a time when the economy appears strong.
“We are the envy of the world — and the best is yet to come!” Trump tweeted Friday.
The president’s victory lap comes three days after he called on the Federal Reserve to cut interest rates and buy more government bonds, policies that are typically used only during economic and financial crises.
Fed Chair Jerome H. Powell left interest rates unchanged this week and showed little sign of wanting to move them anytime soon, opting to wait and see what happens with the economy before taking any further action.
One of the conundrums of this economy is why inflation remains so low. Economic theory suggests that, now that the unemployment rate has been at or below 4 percent for more than a year, wages should rise at a more rapid clip, forcing businesses to lift the price of goods to afford the extra pay. But that’s not happening.
“There’s just not a lot of inflationary pressure despite the really low unemployment rate,” said Susan Houseman, an economist and vice president of the W.E. Upjohn Institute for Employment Research.
Hiring has been strong this year across just about every sector but retail and manufacturing. Companies even continue adding temporary employees, who are often the first to get the ax at early signs of trouble.
Recessions are tricky to forecast, leading some economists to argue that a better question to ask right now is how to ensure that this economy helps as many people as possible while times are good.
“The unemployment rate isn’t 3.6 percent for everybody,” said William Rodgers, chief economist at the Heldrich Center for Workforce Development at Rutgers University. “I hope the president and his team don’t think this is the best that we can do, especially for minority youth.”