April U.S. Jobs Report: Are we in a Goldilocks Economy?
A Goldilocks Economy is an economy that is neither too hot or cold, in other words, it sustains moderate economic growth and has low inflation, which allows a market-friendly monetary policy.
Today’s national employment report from the U.S. Bureau of Labor Statistics once again outpaced expectations by posting a 263,000 increase in jobs added in April. The strong gain adds to the upward revisions of the two previous months, bringing the year-to-date monthly average to 205,000 jobs added, only slightly below the 223,000-monthly average in 2018.
Notable job gains continue to bolster professional and business services (up 76,000 jobs), which comprised about one fifth of last year’s employment growth. Other sectors experiencing notable growth include construction (up 33,000 jobs), healthcare (up 27,000 jobs), and social assistance (up 26,000 jobs). Retail trade employment, particularly in general merchandise stores, are continuing to weaken.
According to a new CompTIA report, the information-technology sector added 18,900 jobs in April, with hiring in technology services, custom software development and computer systems design leading April job growth. Software and application developers continue to be the most in-demand talent companies are looking to hire, with 78,000 job postings last month.
The unemployment rate, falling to 3.6 percent, hit another 50-year low (the lowest rates since 1969). Nevertheless, the decreased unemployment rate primarily stemmed from a drop in labor force participation, which has been improving in recent years but was inevitably going to decline due to demographic factors like retiring baby boomers and lack of population growth. In addition, immigration of foreign-born workforce has slowed dramatically. Over the past 10 years, immigration has been a significant contributor to the domestic labor force, accounting for half of labor force growth. While labor force participation among women has returned by to pre-recession rates, male participation rates are still well below. Women’s participation has been fueled by growth in industries that generally employ a higher share of women, such as healthcare and education, while men’s participation has been held back by a decline in manufacturing jobs and factors such as the opioid crisis and lower graduation rates than women.
Wage growth has inched up, 0.1 percent, in line with expectations, but still relatively subdued at this point of the labor market cycle. A recent surge in productivity is one of the main arguments for the lack of compensation growth. Overall, labor income is running at about 4 percent annualized growth rate. However, low inflation is helping improve real wages and will keep bolstering consumer spending.
Nevertheless, low inflation is the reason the Federal Open Market Committee (FOMC) decided to keep the fed funds rate unchanged earlier this week. The FOMC’s decision was largely based on slower growth in household spending and business fixed investment, and consequently lack of overall inflation which the FOMC believes will remain muted. While March’s decision to keep the funds rate unchanged was primarily due to concerns over lack of global growth, their most recent statement shifted the concern to low inflation expectations.
FOMC is expecting to see continued economic growth through 2019 supported by a rebound in domestic demand, putting GDP around 2.5 percent — a slowdown from 2018, but still above the economy’s potential rate of growth. And while some market observers, and the president, have been looking for some policy easing from the Federal Reserve, such as lower rates, the Fed’s statement suggests continued patience and no changes to the fed fund’s rate through the remainder of this year, and possibly a good portion of 2020.
In looking at future job growth, the U.S. Bureau of Labor Statistics Job Opening Labor Turnover Survey released earlier this month said there were 7.1 million job openings at the end of February. While the number of job openings declined from recent highs, the number is still above levels seen a year ago and since 2000 when the data history began. Job openings decreased from the month before, mostly in accommodation and food services (-103,000), real estate and rental and leasing (-72,000), and transportation, warehousing, and utilities (-66,000). The number of job openings fell in the Northeast, South, and Midwest regions.
Filling open positions remains a concern for companies. According to NABE’s Business Conditions Survey, 52 percent of respondents reported shortages of skilled labor at their firms—an increase from 45 percent a year ago.