Outsize Gains in US Employment Show Scope for Economic Growth
The U.S. labor market still has plenty of room to run.
That’s the message from government data on March 9, which gave multiple indications America’s jobs situation isn’t as tight as previously thought, sending stocks and bond yields higher. Employers added the most workers since mid-2016, the participation rate rose by the most in almost eight years despite downward pressure from retiring baby boomers, and wage gains cooled from a pace that spurred financial turbulence last month.
The addition of 313,000 employees to nonfarm payrolls was spread across many industries and covered sectors that have complained of labor shortages for some time, including trucking and factories. The report may be a political benefit for President Donald Trump, while also leaving Federal Reserve policy makers to decide whether a faster pace of interest-rate increases is warranted this year than the three they projected in December.
“The bottom line is the labor market remains rock solid,” said Richard Moody, chief economist at Regions Financial Corp. The pace of people streaming into the U.S. labor force “can’t go on forever but I think it’s got a little bit longer to run,” he said.
The participation rate — the share of working-age Americans with jobs or actively seeking one — increased to 63%, reflecting a 806,000 increase in the labor force. That indicates there’s still scope for pulling even more people from the sidelines. The jobless rate held at 4.1%, the fifth straight month at that level. Average hourly earnings increased 2.6% from a year earlier following a downwardly revised 2.8% gain.
Among men age 25 to 54, a key demographic watched by economists and new Fed Chairman Jerome Powell, the participation rate increased to 89.3%, the highest since 2010. The rate for teenagers increased to an eight-year high of 36%.
Fed policy makers are widely anticipated to raise interest rates when they next meet March 20-21 in Powell’s first gathering as chairman. A bigger question is whether central bank officials strengthen their resolve for three quarter-point hikes this year, or leave the door open for four.
Chicago Fed President Charles Evans, speaking March 9 in a Bloomberg Television interview, said there’s scope for the central bank to be patient and careful in raising interest rates to see if inflation picks up. “The state of the labor market is vibrant” and the “increase in the labor-force participation rate is a really good sign,” said Evans, who dissented against the Fed’s last interest-rate hike in December.
Moody, of Regions, said he expects the Fed’s updated forecasts this month to continue to signal three rate hikes this year. Mickey Levy, economist at Berenberg Capital Markets, said in a note that the latest data give evidence of economic momentum that will lead the Fed to raise rates in each quarter of 2018.
“This is a report that’s going to strengthen the argument of some of the doves on the Fed, that people came back to the labor force last month — that’s a positive sign for the U.S. economy,” Alan Krueger, a Princeton University professor who served as chairman of the Council of Economic Advisers under President Barack Obama, said on Bloomberg Television. “We’ll see how long that can continue.”
Average hourly earnings rose 0.1% from the prior month following a 0.3% increase, the report showed. In the 12 months ended in February, analysts had forecast a monthly gain of 0.2% and an annual increase of 2.8%.
Employees worked more hours last month, which also may have played a role in the wage numbers. The average workweek for all private employees increased to 34.5 hours, from 34.4 hours. The initial data for January had shown a shorter workweek of 34.3 hours, which had the effect of boosting average hourly pay.
What Bloomberg Economists Say
The jobs report shows healthy economic conditions at the start of the year, as reflected in both the magnitude of gains as well as the healthy dispersion of job creation. The rebound in the workweek and solid payroll print provide strong indications that the economy is poised to buck the trend of recent years, whereby GDP growth was soft in the first quarter, rebounded in the second quarter and leveled out in the second half — a pattern economists call “residual seasonality.” Thanks to the fiscal stimulus from tax reform, this seasonality is unlikely to recur in 2018.
— Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Economics
A separate gauge was more positive for wage growth. Average hourly earnings for just production and non-supervisory workers rose 2.5% from a year earlier, following a 2.4% gain in January.
Hiring was strong across the board and particularly in goods-producing industries. Construction businesses added 61,000 jobs, while factories boosted payrolls by 31,000.
Service providers added 187,000 workers, including about 50,000 in retail, a sector that has been under pressure.
Growth in worker pay has been modest during most of this expansion, especially relative to how tight the job market is running. Trump has said the tax-cut legislation he signed in December will spur economic growth and boost jobs and wages.
At the same time, his tariffs on steel and aluminum imports may become a headwind depending on how extensively they’re implemented and how other nations retaliate.
Andrew Chamberlain, chief economist for careers website Glassdoor Inc., said he’s not persuaded that there’s much slack left in the labor market, and that the fiscal boost should have been saved for the next recession. “We are at full employment today,” he said. “Any attempts to do more stimulus with taxes or spending today is going to haunt us long-term.”
With assistance by Chris Middleton, Katia Dmitrieva, and Jordan Yadoo
