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Job Growth Signals Robust Economy, With Gain of 228,000 After 7 Years of Job Growth, Room for More, or Danger Ahead?
(about 7 hours later)
The Labor Department released its official hiring and unemployment figures for November on Friday morning, providing the latest snapshot of the American economy. The economy’s vital signs are stronger than they have been in years. Companies are posting jobs faster than they can find workers to fill them. Incomes are rising. The stock market sets records seemingly every month.
• 228,000 jobs were added last month. Wall Street economists had expected an increase of about 200,000, according to Bloomberg. The latest evidence of the revival came Friday, when the Labor Department reported that American employers added 228,000 jobs in November. The unemployment rate held steady at 4.1 percent, the lowest since 2000. Job growth has slowed since its peak in 2014 but remains remarkably steady: For the first time on record, employers have added jobs every month for more than seven years — 86 months, to be precise.
• The unemployment rate was 4.1 percent, unchanged from October, when it was the lowest since 2000.
• Average earnings rose by 5 cents an hour and are up 2.5 percent over the past year.
The American job market is the strongest it’s been in a decade, and arguably the strongest since 2000. The United States has now added jobs for 86 consecutive months — a downward blip in September was later revised to show a small gain — and the unemployment rate is lower than it ever got during the last boom, which ended when the housing bubble burst. Even wage growth, long the weak spot in an otherwise strong recovery, is showing signs of picking up.
“It’s a really, really strong economy,” said Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago. “Companies really want to take advantage of the economy, so they want to hire and get while the getting’s good.”“It’s a really, really strong economy,” said Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago. “Companies really want to take advantage of the economy, so they want to hire and get while the getting’s good.”
A White House statement on the jobs data pointed to both accomplishment and anticipation, with congressional Republicans on the verge of passing a $1.5 trillion tax cut plan that President Trump could sign into law this month. That strength could also pose challenges, particularly in light of the $1.5 trillion tax cut that Congress could pass as early as this month. Economists expect the tax bill to provide at least a modest lift to the economy — but they are not sure that’s a good idea.
Declaring that “President Trump’s bold economic vision continues to pay off,” it added, “With tax reform moving quickly through Congress, confidence in the strength of our economy remains high and families around the country are reaping the benefits.” With unemployment so low and the economy fundamentally healthy, a tax cut could lead the economy to grow too quickly, pushing up inflation and forcing the Federal Reserve to raise interest rates faster than planned.
Economists expect the bill to provide at least a modest lift to the economy — but they aren’t sure that’s a good idea. With unemployment so low and the economy fundamentally healthy, a tax cut could lead the economy to overheat, pushing up inflation and forcing policymakers at the Federal Reserve to raise interest rates faster than planned.
“It’s a very poorly timed fiscal stimulus,” said Joseph Song, an economist at Bank of America. “It kind of raises the risk of a boom-bust cycle.”“It’s a very poorly timed fiscal stimulus,” said Joseph Song, an economist at Bank of America. “It kind of raises the risk of a boom-bust cycle.”
Job growth has gradually slowed since 2014, when the American economy added close to three million jobs. But hiring remains remarkably steady. Employers are on track to add about two million jobs in 2017, a solid pace eight years into an economic expansion. The hurricanes that hit Texas and Florida in September led to a brief slowdown, but hiring quickly bounced back. For now, however, the figures present a political opportunity for President Trump, who ran for office on a promise to revive the American economy.
Economists aren’t sure how long the growth can continue. The unemployment rate is approaching the level many economists consider “full employment” — the point at which essentially everyone who wants a job can find one. But the unemployment rate may not fully reflect the number of available workers. The labor force participation rate — the share of adults working or actively seeking work — has been edging up in recent years, a slight dip in October notwithstanding. That suggests that a wealth of job opportunities could be drawing people into the work force. Economists almost universally say Mr. Trump has had little to do with the rebound, which began long before he was elected and has not accelerated meaningfully since he took office. But with unemployment low and wages beginning to creep upward, voters may be more inclined to give credit.
“I think there is a bit more slack to be burnt off,” Mr. Song said. “There are still people on the sidelines that are looking to come back to the labor market.” Sarah Huckabee Sanders, the White House press secretary, said on Friday that the jobs report was evidence that “President Trump’s bold economic vision continues to pay off.”
Many companies, however, report that hiring is getting harder. Michael Big, who runs a small general contractor in the Chicago area, said his company had turned away projects in recent months because he can’t find enough workers. Wherever the credit lies, workers are benefiting from an economy that is delivering broad-based gains in income and employment for the first time in at least a decade. Groups that were left behind in the early stages of the economic recovery, such as African-Americans and people without a college degree, have seen their unemployment rates drop sharply in recent years.
“Unfortunately we don’t have the labor to take all the projects that are coming in,” Mr. Big said. His competitors are having the same problem, he added. “We’re all grumbling and complaining about the same thing, when we’re not poaching guys from each other.” And although wage growth remains disappointing, household income — which reflects not only hourly pay rates but also how many people have jobs and how many hours they are working — has shown strong gains, particularly for poorer households.
Mr. Big’s experience raises a question: If workers are so hard to find, why aren’t companies raising pay? In his case, Mr. Big says that in order to pay more, he would have to charge his customers more, and if he does that, he’ll be outbid by his competitors. Companies in nearly every sector are reveling in the best opportunities they have seen in years. Improving global growth is giving a lift to manufacturers, which have added jobs for four straight months. Rising incomes and strong consumer confidence helped retailers, whose payrolls grew at the fastest pace since January despite the shadow of rising online sales. Even the fall hurricanes, which led to a short-lived slowdown in hiring in September, are now helping employment as Texas and Florida rebuild. The construction sector added 24,000 jobs in November.
“The labor is there, but they’re not skilled enough for the wages they’re asking,” Mr. Big said. He said construction workers without special skills were asking $15 an hour, well above the roughly $12 an hour he can afford. So as far as the business climate, “maybe it’s not quite the best ever, but it’s pretty close to the best ever,” said Mike Bolen, chief executive of McCarthy Building Companies, a commercial construction company with offices across the country.
The slow pace of wage growth has been a mystery in recent months. The increase in average hourly earnings is barely enough to keep up with inflation. “Typically, we’ll have one region that’s really hot and one region that’s really slow, and right now, all five regions are just cooking,” he added. “Everything’s busy.”
Most economists expect wage growth to pick up as the unemployment rate falls. Other measures of earnings have already shown modestly faster gains, and there are signs that businesses are feeling pressure to raise pay. For the first time in six years, chief executives surveyed by the Business Roundtable, a coalition of big corporations, reported that labor expenses were their biggest cost pressure in the fourth quarter. Business could get even busier soon. The Republican tax plan aims to encourage business investment by cutting corporate taxes, which could increase demand for the big projects — hospitals, airports, office building — that make up a big part of McCarthy’s business. In fact, Mr. Bolen said, many clients are already making plans on the assumption that the legislation will pass.
“With the unemployment rate this low and with just not enough people coming back into the work force to fill positions, firms are having to resort to offering higher wages,” said Joseph Brusuelas, chief economist of RSM, a financial consulting firm. “A lot of people are making decisions this year assuming that it’s going to happen,” Mr. Bolen said. “If it doesn’t happen, I think you’ll see some people pull back.”
Friday’s report suggests that the holiday shopping season is off to a solid start. Retailers have struggled for much of the year as they fight off competition from Amazon and other online retailers. But the sector added nearly 19,000 jobs in November, the most in over a year. (The numbers are adjusted for seasonal patterns.) The challenge for McCarthy, as for other builders, is finding the workers for their projects. A couple of years ago, Mr. Bolen said, job seekers would line up outside the gates of construction sites, hoping for a chance to work. Today, McCarthy is having so much trouble finding qualified workers that it is building a 10-acre training center outside of Houston and hiring staff members to teach construction skills.
The rise of e-commerce has also created jobs in warehouses and at delivery services such as FedEx and United Parcel Service, which recently warned of delays because of the volume of online shopping. The transportation and warehousing sector added 10,500 jobs in November, continuing a year of strong gains. “It’s a really big deal now, probably a bigger deal than I’ve ever seen it, and I don’t see it getting better,” Mr. Bolen said. “We are spending a lot of money and effort trying to train up the unskilled portion of our work force.”
“We are seeing a lot of jobs being created in e-commerce,” said Catherine Barrera, chief economist of the online job site ZipRecruiter. “Amazon is hiring like crazy.” The question vexing many economists is why, if labor is as scarce as Mr. Bolen and other executives claim, workers are not seeing bigger increases in their paychecks. McCarthy has raised pay, especially for people with specialized skills. But over all, wage growth remains restrained. Average hourly earnings were up 2.5 percent in November from a year earlier, only a bit faster than the rate of inflation.
Policymakers at the Federal Reserve have sent clear signals that they plan to raise the benchmark interest rate at their meeting next week. It would probably have taken a nearly catastrophic jobs report to change that — and Friday’s report was far from catastrophic. “It’s still just creeping higher,” said Brett Ryan, an economist at Deutsche Bank in New York. “Wage growth is just not taking off the way we’ve seen in the past.”
Friday’s report could, however, affect the Fed’s plans for next year. Economists expect the Fed to raise rates three times in 2018. But if the unemployment rate continues to fall — and especially if wages start to rise more quickly — Fed officials could feel pressure to raise rates faster to head off inflation. That picture could change. Other measures of earnings, for example, show faster growth. And according to an analysis by Ian Shepherdson, chief economist for the forecasting firm Pantheon Macroeconomics, wages are rising faster in regions where the unemployment rate is lowest. That suggests that pay growth could accelerate if the unemployment rate continues to fall in 2018 as Mr. Shepherdson expects.
The report could also have political implications. Mr. Trump has frequently cited strong jobs numbers as evidence that his economic policies are working. Most economists are skeptical that presidents have much influence over the economy. But with Mr. Trump nearing the end of his first year in office, the report could take on symbolic importance. Companies are feeling more pressure to raise pay. For the first time in six years, chief executives surveyed by Business Roundtable, a coalition of big corporations, reported that labor expenses were their biggest cost pressure in the fourth quarter.
Catherine Barrera, chief economist of the online job site ZipRecruiter, said wages would pick up when workers gained the confidence in the economy to demand raises — and to change jobs if they do not get them. There are signs that could be happening. Nearly 9.5 million workers quit their jobs voluntarily in the third quarter, the most since 2001.
“If people are feeling really confident and comfortable with the labor market, they’re going to be more likely to seek that next opportunity,” Ms. Barrera said. “When we see that type of confidence, that’s when wages will grow.”
Rising pay would be good news for workers. But it could cause concern at the Federal Reserve, where policymakers have been gradually raising rates and selling assets in a bid to keep inflation in check.
The Fed is all but certain to raise interest rates at its meeting next week, and has signaled plans to do so three times next year as well. But if inflation starts to pick up, the Fed could be forced to act more quickly than it wants, with unpredictable effects on financial markets and the economy.
“You could be looking at a combination in the summer of stronger growth, unemployment at 3.5 percent and still falling, and wage growth picking up as well,” Mr. Shepherdson said. “That requires a fairly substantial adjustment to markets.”