U.S. economy
The job market is strengthening so impressively that it has some people scared: What happens when the U.S. economy runs out of headroom to grow?
Today the Bureau of Labor Statistics announced that employers added 288,000 jobs in June and the unemployment rate fell to 6.1 percent, the lowest since the financial crisis month of September 2008. Both numbers were surprises. Economists surveyed by Bloomberg had been looking for job growth closer to 200,000 and a flat unemployment rate of 6.3 percent.
In May, U.S. employment finally rose above its previous peak of December 2007. This past month it continued to surge higher, as this chart shows:
The strongest job growth since the recession is indisputably good news. On top of the job gains, average hourly earnings rose 0.2 percent in the month and 2 percent over the past year. That’s a healthy development because it gives workers the money they need to spend, helping both them and the economy. “My own expectation is that as the labor market begins to tighten, we will see wage growth pick up some,” Federal Reserve Chair Janet Yellen told reporters last month. Yellen believes that there is still plenty of slack in the labor market and no risk of inflation, so there’s no rush to start tightening monetary conditions.
Even long-term joblessness, which has been a sore point in this expansion, is easing. The number of long-term unemployed fell to 3.1 million and their share of all jobless fell to 32.8 percent, the lowest since June 2009. The share of the working-age people in the labor force–i.e., the participation rate–stayed flat at 62.8 percent.
But there’s a dark cloud inside every silver lining: To inflation-phobes, a rebound in wage growth is a warning sign of inflation ahead. The fear is that the deep 2007-09 recession knocked many people out of the labor force permanently, so there’s not as much slack in the job market as there appears to be. On top of that, the inflation-worriers say, a lack of investment in labor-saving machinery and software means that workers’ productivity isn’t growing much, putting further pressure on the labor market. “Although wages are far from spiraling out of control,” there is “a rising risk of accelerating wage inflation,” James Paulsen, chief investment strategist and economist at Wells Capital Management, wrote in an analysis today.
In report on Wednesday, Morgan Stanley economists wrote that “if data trends continue to suggest that…there isn’t a large remaining margin of slack in the economy…the Fed may face some difficult choices.”
Of course, if the U.S. has a problem with a too-tight labor market, it’s still far better off than other advanced economies with lower birth rates and less immigration. A Boston Consulting Group study this week said the U.S. may even have surplus labor in the years ahead.
