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Solid Job Growth Strengthens Prospect for a Fed Rate Increase President Obama Is Handing a Strong Economy to His Successor
(about 4 hours later)
The government reported on Friday that employers added 178,000 workers in November, a solid gain that clears the way for the Federal Reserve to raise the benchmark interest rate when it meets later this month. Departing occupants of the White House rarely hand off an improving economy to a successor from the opposing party.
The official unemployment rate dropped to its lowest level in more than nine years, 4.6 percent, from 4.9 percent the month before. But average hourly earnings ticked down 0.1 percent. When Barack Obama was waiting in the wings after the 2008 presidential election, for example, the economy was in a severe downward spiral: Employers reported cutting 533,000 jobs that November, the biggest monthly loss in a generation.
Revisions to the September and October data removed 2,000 jobs from the employment gains for those months. Over the last three months, increases have averaged 176,000. But according to the government’s report on Friday, Donald J. Trump can expect to inherit an economy that has added private sector jobs for 80 months, put another 178,000 people on payrolls last month and pushed the unemployment rate down to 4.6 percent today from 4.9 percent the previous month. Wage growth, though slower, is still running ahead of inflation, and consumers are expressing the highest levels of confidence in nearly a decade.
“A solid report but not quite as good as the headline numbers would indicate,” said Gus Faucher, deputy chief economist at PNC in Pittsburgh. “There’s mixed news there.” The Federal Reserve is confident enough about the economy’s underlying strength that it is now set to raise the benchmark interest rate when it meets later this month.
While payroll additions were steady, he said the drop in hourly earnings offset some previous gains. Also, he noted, the substantial drop in the unemployment rate “came more from a decline in the labor force, more than an increase in household employment.” The jobless rate for November, the lowest since August 2007, “is a testimony to how strong employment growth has been,” said Jim O’Sullivan, chief United States economist at High Frequency Economics.
For all the arguments about the health of the economy during the presidential race, this latest snapshot of American workers does not radically shift the outlook one way or the other. Jason Furman, now chairman of President Obama’s Council of Economic Advisers, remembers the transition eight years ago, when he was crammed into his office with a circle of key officials as the latest jobs numbers from the Labor Department landed.
The official jobless rate is the lowest since August 2007. A broader measure of unemployment that includes part-time workers who would rather work full time or those too discouraged to keep looking also slipped down, to 9.3 percent from 9.5 percent. “It was an utterly terrifying time, the likes of which none of us had ever seen in our lifetimes,” Mr. Furman recalled. Fearing that “the economy was following the same trajectory that it did at the beginning of the Great Depression,” everyone was focused on how to “rapidly slow the bleeding and figure out how to get the economy growing again.”
The biggest gains occurred in professional and business services and health care, and the manufacturing and retail sectors lost ground. By contrast, Mr. Furman said, “the economy today is healthy and it’s improving.”
“I don’t think there’s any doubt that momentum has been modestly upward,” said Jim O’Sullivan, chief United States economist at High Frequency Economics at High Frequency Economics. For all the improvements, tens of millions of Americans understandably feel that the recovery has passed them by. Those without skills are relegated to low-paying positions without steady schedules, security and benefits. Breadwinners who once held well-compensated manufacturing jobs are angry about being forced to settle for lower-wage service jobs — or no jobs at all.
Hourly wages dipped last month, slowing the pace of annual wage growth to 2.5 percent. The labor force participation rate also ticked down, to 62.7 percent. Nonetheless, Mr. O’Sullivan noted that both measure were still running slightly ahead of where they were last year. And the low jobless rate “is a testimony to how strong employment growth has been.” Profound anxiety, particularly among the white working class, about the ability to reach or comfortably remain in the middle class is one of the factors that helped propel Mr. Trump to the White House.
Considering the jobs gains in 2016, Mr. O’Sullivan noted that at this point, the “bar isn’t very high” for the central bank to follow through with a rate increase, which would be the first in a year. Pockets of weakness also surfaced in the latest jobs report, which showed that more people dropped out of the labor force last month than joined it. Manufacturing jobs declined further, and there are still plenty of part-time workers who would rather be full time. Roughly 15 percent of men in the prime working ages, 25 to 54, are out of the work force, and while the official jobless rate for high school graduates fell to 4.9 percent, it is more than twice the rate for college graduates.
While Donald J. Trump won the presidential race last month with promises to create more jobs, it is too soon for any election results to have affected the overall employment picture. The Labor Department surveyed employers about changes in their payrolls just a few days after the vote took place. “There is a bifurcation of the work force,” Jonas Prising, chairman and chief executive of the ManpowerGroup, one of the largest recruiters in the United States. People who are able to take advantage of advances in technology, globalization and other shifts that favor those with the right skills for the nation’s advanced services are thriving.
“It doesn’t have anything to do with the election,” said Mr. Faucher of PNC. For others, the prospects do not look good. “There used to be part of work force that had well-paying jobs that were low or unskilled,” Mr. Prising said. “Those kinds of jobs are very difficult to find today.”
The task of slicing the unemployment rate in half from its recession high of 10 percent has taken seven years. The deal that Mr. Trump made with the heating and cooling company Carrier this week to keep 1,000 manufacturing jobs from moving to Mexico from Indiana is emblematic of the kind of actions he said he would take as president to help blue-collar workers.
“This is not something that happens overnight,” said Jonas Prising, chairman and chief executive of the ManpowerGroup, one of the largest recruiters in the United States and abroad. But there are limits to the power of persuasion.
According to several key measures, President Obama is handing over an unusually strong economy to a successor from the opposing party. There have been 81 consecutive months of private sector job growth, the longest streak on record. Betsey Stevenson, an economist at the University of Michigan and a former economic adviser to Mr. Obama, said that manufacturing, while still a driving force in the economy, employed fewer and fewer people. More than 80 percent of jobs are now in the service industry, Ms. Stevenson said, and Mr. Trump should be thinking more about how to match workers with those jobs.
The tightening labor market, after a frustrating delay, has started to bump wages above the rate of inflation. Housing prices are up, and consumers are expressing the highest levels of confidence in nearly a decade. The American economy grew by a healthy 3.2 percent annual rate during the third quarter of this year. “The economy is in a great place, and his biggest challenge is continuing that,” she said.
Such progress led members of the Federal Reserve to conclude at last month’s meeting that the case for an increase in the benchmark rate had been “strengthened,” and that they would be ready to move “so long as incoming data provided some further evidence of continued progress.” Some economists worry that the Federal Reserve is too focused on fears of future inflation and that it should hold off on any increase in rates until conditions have improved further. “There’s no reason to pre-emptively slow the economy down, given that we’re starting from less than full employment,” said Elise Gould, an economist at the left-leaning Economic Policy Institute in Washington. “Right now, the priority should be keeping the economy on track and moving it forward.”
Christopher P. Lu, the deputy secretary of the Labor Department, said, “It’s hard to imagine a more stark contrast between the economy that we are handing over to the one that we inherited” in 2008. Such pleas are unlikely to win the day. At last month’s meeting of the Federal Reserve, members concluded that the case for an increase in the benchmark rate had been “strengthened,” and that they would be ready to move “so long as incoming data provided some further evidence of continued progress.”
Yet for all the statistical improvements, tens of millions of workers continue to feel that the recovery has passed them by. Those without skills are relegated to low-paying positions without steady schedules, security and benefits. Breadwinners who once occupied well-compensated manufacturing jobs are unwilling to settle for minimum-wage service jobs. Many employers are having a harder time finding and retaining workers.
“There is a bifurcation of the work force,” Mr. Prising of Manpower said. In that sense, the overall average unemployment rate is misleading. Jobless rates among people with the right skills who are able to take advantage of the technology revolution, globalization and other shifts in the economy have fallen below prerecession levels. “Recruiting is a tough issue right now in skilled and semiskilled industries,” said Robert A. Funk, chairman and chief executive of Express Employment Professionals, a staffing agency based in Oklahoma City. He mentioned a particular need for workers in accounting, information technology, call centers, warehousing and office and professional services.
For others, the prospects do not look good. “There used to be part of work force that had well-paying jobs that were low- or unskilled,” Mr. Prising said. “Those kinds of jobs are very difficult to find today.” Mr. Funk said employers often complained about being unable to find employees with a strong work ethic who met the minimum requirements. “Drug screening is a real challenge in many parts of the country,” he said. “Only 30 percent can pass a drug screen in the state of Washington,” where marijuana is legal.
“Exactly this same polarization of the work force with the same concerns about the future is what’s playing out in all developed countries,” he added. At the same time, employers have been reluctant to raise wages to a level that might lure back sidelined workers. The result has been that the country has 5.5 million job openings, a near-record level, but still relatively anemic labor force participation rates.
For that reason, some economists argue that fears of inflation are overblown and the Fed should hold off on any increase. “There’s no reason to pre-emptively slow the economy down, given that we’re starting from less-than-full employment,” said Elise Gould, an economist at the left-leaning Economic Policy Institute in Washington. “Right now, the priority should be keeping the economy on track and moving it forward.”
In many areas, employers continue to lament their inability to find and retain workers.
Robert A. Funk, chairman and chief executive of Express Employment Professionals, a staffing agency based in Oklahoma City, said jobs orders picked up last month, which he said was not unusual this time of year.
“Recruiting is a tough issue right now in skilled and semiskilled industries,” he said, mentioning accounting, information technology, call centers, warehousing and office and professional services.
Mr. Funk said that employers often complained about being unable to find employees with a strong work ethic who met the minimum requirements. “Drug screening is a real challenge in many parts of the country,” he said. “Only 30 percent can pass a drug screen in the state of Washington,” where marijuana is legal.
At the same time, employers have been reluctant to raise wages to a level that might lure back sidelined workers. The result has been that the country has 5.5 million job openings, a near-record level, but anemic labor force participation rates, at least in comparison with previous decades.
“The challenge out there now is finding workers and keeping the workers you have,” said Steve Rick, chief economist at CUNA Mutual Group. Those shortages, whatever the cause, are likely to push wages higher next year, he said.“The challenge out there now is finding workers and keeping the workers you have,” said Steve Rick, chief economist at CUNA Mutual Group. Those shortages, whatever the cause, are likely to push wages higher next year, he said.
“People are feeling good not only about their current income, but their future income,” Mr. Rick said. “People are spending and firms are responding to that. They are doing a lot of hiring.” “People are feeling good not only about their current income but their future income,” Mr. Rick said.
Mahindra USA, a subsidiary of the Indian automaker and farm equipment company, for example, said it planned to double its work force of 160 people in the United States the next couple of years, according to Susan Moriarty, a Mahindra spokeswoman. Whatever the economy’s current failings, Mark J. Rozell, a political scientist at George Mason University in Virginia, said it was nonetheless better than the ones most incoming presidents have faced in the last half-century.
“Trump can be thankful that his predecessor is handing him a fairly strong situation,” Mr. Rozell said, “especially when compared to many past party transfers of power.”