Snapshot of US job market: Solid hiring but still-tepid pay
Published 7:55 am Monday, September 7, 2015
WASHINGTON — On Labor Day weekend 2015, the U.S. job market has found an old sweet spot: 5.1 percent unemployment — many miles from the 10 percent joblessness America endured back in 2009.
It’s the lowest rate in more than seven years, suggestive of healthy hiring levels that have traditionally fostered rising incomes, consumer spending and economic growth.
In August, the unemployment rate fell on the strength of a decent if less-than-stellar 173,000 added jobs. And most economists expect the government to eventually revise up that job gain because of seasonal trends that are notoriously difficult to calculate.
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Friday’s employment data reflected the durability of the U.S. economy, which has so far withstood distress worldwide: Tumultuous stock markets, a sharp slowdown in China, a perpetually struggling European economy and the start of a recession in Canada, America’s largest trading partner.
Yet the report also spotlighted aspects of an economic expansion that has been steady without being fully satisfying: Wage growth remains slight. And millions remain relegated to the sidelines of the job market.
Joseph LaVorgna, chief U.S. economist at Deutsche Bank, grades the job market as “good” but not great.
“It’s a solid B,” LaVorgna said. “Definitely not an A.”
5.1 percent unemployment
That figure serves as compelling evidence for why the U.S. job market is the envy of most of the industrialized world. The unemployment rate has dropped a full percentage point over the past 12 months, and for a good reason: More Americans are finding work.
At previous times during the recovery from the Great Recession, the unemployment rate had dipped only because many people had abandoned their job searches and were no longer counted as unemployed.
Employers have added nearly 2.6 million workers since last year — about 764,000 more than the number who left the workforce to retire, start school or end their job hunts in frustration, according to the government’s monthly survey of households.
A 5.1 percent unemployment rate also fits the Federal Reserve’s picture of a normal economy. And so it heightens expectations that the Fed will raise interest rates from record lows later this month. Maximizing employment is one of the Fed’s mandates.
But the Fed must balance that task with its other mandate: To stabilize prices. And across the economy, inflation remains well short of the Fed’s 2 percent target, at which point a rate hike would be appropriate.
Besides the official unemployment rate, the jobs report includes a broader measure of joblessness: It takes account not only of people seeking work but also of part-time workers who can’t find full-time jobs and other people on the fringes of the job market. This broader measure was 10.3 percent last month, relatively high for a baseline unemployment rate of 5.1 percent.
When the unemployment rate was most recently this low, in early 2008, the broader measure was 9.2 percent. That gap between 9.2 percent in 2008 and 10.3 percent today translates into an additional 1.9 million Americans who are still barely getting by, testament to a job market has yet to fully heal.
That’s the average monthly job growth over the past three months. That average could rise later because economists say seasonal adjustment quirks could cause the August jobs figure of 173,000 to be revised up by 50,000 or more.
Why do job gains of more than 200,000 matter so much? It’s roughly twice the monthly influx of workers into the job market. It means that demand for workers exceeds the incoming supply and suggests that employers foresee continued customer demand.
Tellingly, hiring in August shifted away from sectors with heavy exposure to the global economy. Manufacturers, for example, shed 17,000 jobs. The pace of hiring also slipped for business services.
More than half the added jobs came from industries largely insulated from overseas turmoil: Government, education and health services. Their share of job growth nearly doubled last month from 27.1 percent in July.
That’s the share of employed Americans older than 25 with college degrees. This figure has climbed more than a percentage point from 39.2 percent over the previous 12 months. Seven years ago, the share of college-graduate workers was roughly 35 percent.
The change points to an encouraging shift since the recession: American workers are increasingly better educated. College graduates not only earn more on average than non-college grads, but on top of that, their unemployment rate is now a scant 2.5 percent — less than half the national average.
The average hourly earnings have crept up just 2.2 percent over the past year to $25.09. That increase looks adequate to some economists because of ultra-low inflation over that time. But an unemployment rate barely above 5 percent would normally drive faster pay growth. That’s because when hiring picks up, the supply of available workers tightens and employers generally feel compelled to raise pay to attract talent.
Yet since 2012, average hourly earnings have largely risen between 1.8 percent and 2.2 percent in the monthly reports — not nearly enough for many Americans to feel that their living standards have improved.