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Opinion The U.S. job market has recovered faster than (almost) anyone predicted

A hiring sign is displayed at a restaurant in Morton Grove, Ill., on April 28. (Nam Y. Huh/AP)

Amid some other unfortunate economic developments — accelerating inflation, a stock-market plunge, declining productivity — there’s one bright spot. So bright, in fact, it’s almost blinding.

That good news: job growth.

U.S. employers added 428,000 jobs on net in April, about the same number added in March, the Bureau of Labor Statistics reported Friday. Unemployment remained flat at 3.6 percent — close to a half-century low.

Perhaps we’ve gotten accustomed to (even spoiled by!) similar headline numbers in recent months. Over the past year, job growth has averaged more than half a million new positions on net each month. But step back a bit and you’ll realize how remarkable the pace of hiring has been.

Take a look at the latest version of the chart I’ve been regularly updating since mid-2020. I used to refer to it as the Scariest Jobs Chart You Will See Today. Lately, it doesn’t look so scary.

The graph shows the change in number of jobs relative to the start of every downturn since World War II. As you can see, jobs plummeted in the pandemic recession that began February 2020. Employment fell further and faster than in any other postwar recession, including the Great Recession. But now we’ve recovered nearly all of the ground we lost in those early covid months; in fact, if April’s pace of job growth continues, we’ll return to pre-pandemic levels of employment in about three months.

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In other words, we might patch up that deep hole by midsummer. By contrast, the jobs hole from the Great Recession was much shallower, in relative terms, but took more than six years to fill. The labor-market recovery then was painfully slow, which gave reason to fear a similarly sluggish crawl back to economic health this time around.

Instead, today’s job market recovery is happening much faster than many expected early on in the pandemic or was predicted even as recently as the start of Joe Biden’s presidency.

In February 2021, the Congressional Budget Office estimated that we’d return to the pre-pandemic jobs peak only around the second half of 2023. The CBO also forecast then that the unemployment rate as of the first quarter of this year would be 5.1 percent, as did the economists polled around then in the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters.

So what happened? Fiscal and monetary policy has been extremely expansionary in the past year. In plainer English: Congress gave Americans a lot of cash to spend, and the Federal Reserve kept interest rates low. Those measures helped juice consumer demand and also demand for workers.

Now, a few important caveats.

First, in a healthy economy, we would expect the total number of jobs to be higher today than it was in February 2020, not more or less flat. The population, and specifically the working-age population, has grown since then, and there should have been commensurate growth in jobs. Simply returning to where we were is not good enough.

Second, the official unemployment rate, which is nearly down to its pre-pandemic low, somewhat exaggerates the job market’s health.

That’s because it counts only those who do not have a job and are actively looking for work. If you have dropped out of the labor force entirely — maybe you retired, became a full-time caregiver, went back to school or have a disability — you won’t be reflected in this number. This matters because labor force participation rates remain lower than they were pre-pandemic, and not only because baby boomers are retiring.

Participation rates for Americans ages 25 to 54 — the range considered prime working age — are down, especially for women.

These depressed labor force participation rates can make the headline unemployment numbers look artificially low.

And third (as I’ve noted before): An abundance of jobs might be little comfort if wage growth isn’t keeping up with the rising cost of living.

Wages grew, in nominal terms, 5.5 percent in April from the year prior. When April inflation numbers come out next week, they will likely show that once again inflation outpaced wage growth.

Job trends aren’t the only forecast that most people got wrong last year; inflation has also run far higher, for much longer, than most had predicted. That is partly because of those expansionary fiscal and monetary policy choices, compounded by persistently snarled supply chains, plus some really bad luck (more coronavirus variants, war in Ukraine, Chinese lockdowns that delay manufacturing and shipping, etc.).

The Federal Reserve has recently begun raising interest rates in an effort to reduce inflation. Higher interest rates make it a little more expensive to borrow so should reduce demand for houses, cars and other purchases. The Fed’s goal is to cool demand just enough that inflation comes down but not so much that it tips the U.S. economy into recession or throws a lot of people out of work.

Fed officials have argued that even if higher interest rates end up reducing demand for workers, that won’t necessarily cause people to lose their jobs. Why? As of March, there were about twice as many jobs open as there were unemployed workers available to fill them. Maybe employers can take down some of their job ads without laying more people off.

Historically, though, the Fed has struggled to reduce inflation without harming hiring or broader economic growth — or pushing us into full-blown recession. Despite the strong jobs numbers to date, we might nonetheless be in for a bumpy ride in the year ahead.

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