April 30, 2024
(The Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, May 3rd at 8:30 AM Eastern Time.)
The March jobs report showed the economy adding 303,000 jobs in the month, far more than most analysts had expected. This is more rapid than most economists consider sustainable for a labor market that is near full employment. But that has been the case for a while.
The unemployment rate ticked down slightly in March to 3.8 percent. That made the 26th consecutive month of below 4.0 percent unemployment. If the April number is again below 4.0 percent, it will tie the streak of 27 consecutive months of below 4.0 percent unemployment at the end of the 1960s.
Wage Growth
Wage growth had been running at just over a 4.0 percent annual rate in the last three months. This is roughly a half percentage point above the pace of wage growth in 2018–2019 when the economy was also near full employment and the inflation rate was consistent with the Fed’s 2.0 percent target.
More rapid wage growth raises the risk of higher inflation, but it is worth noting that the profit share of income actually rose in the fourth quarter. The profit share rose early in the pandemic due to supply chain issues, but it has remained elevated even as supply chains normalized.
That seems to support the notion that corporations have more market power than before the pandemic. In any case, rapid wage growth can not be seen as the main force driving inflation if the profit share is increasing.
Productivity Growth
We saw extraordinarily rapid productivity growth in the last three quarters of 2023. The first quarter number will not be as good, but still likely in the neighborhood of 1.5 percent, leaving year-over-year growth of more than 3.0 percent. This compares to a growth rate in the five years before the pandemic of less than 1.6 percent.
Productivity data are erratic and subject to large revisions, but as we get more quarters of solid growth, it increases the likelihood that we are on a faster productivity growth path. And, stronger productivity growth increases one-for-one the rate of wage growth consistent with a 2.0 percent inflation rate. The April jobs and hours data will give us the first insight as to what the second quarter number might look like.
Slowing Job Growth
The job growth in March was almost certainly faster than the economy can sustain, so it is reasonable to expect some slowing in April. But we all have said this before. Anyhow, job growth closer to 200,000 than 300,000 seems likely.
In particular, we might expect some slowing in the fast-growing sectors, like health care, which added 72,300 jobs in March, and the government sector which gained 71,000 jobs.
Rapid Job Growth in Construction, Manufacturing Stagnating
Construction and manufacturing have historically been the most cyclical sectors, so the changes here can likely give us insights into the near-term future. Construction continues to thrive based on infrastructure spending and factory construction. It added 39,000 jobs last month, well above its average of 22,500 over the prior year.
Manufacturing employment was flat last month. The sector has added just 24,000 jobs over the last year. Interestingly, the auto sector has been much stronger, adding 6,500 jobs in March and 45,000 jobs over the last year. Going in the other direction, nondurable manufacturing lost 4,000 jobs in March and is down 47,000 jobs over the last year, nearly 1.0 percent of total employment.
Closing Gap Between Establishment and Household Surveys
The establishment survey and household survey never line up exactly, but the gap between the two has been extraordinary over the last year. The establishment survey shows job gains of more than 2.9 million, while employment in the household survey has grown by just 642,000, leaving a gap of more than 2.2 million jobs.
The March numbers reduced the gap slightly as employment in the household survey increased by 498,000. The cause of this gap is not clear, but the bulk of the other labor market data is far more consistent with the establishment survey. It is also worth noting that if the household survey employment growth is closer to the mark, then productivity growth is far more rapid than the current data show.
Black Unemployment Rate Should Drop
The unemployment rate for Black workers jumped 0.8 percentage points in March to 6.4 percent, the highest level since August 2022. This is up from an all-time low of 4.8 percent reported for April of last year. The biggest factor in the March rise was a 1.2 percentage points jump in the unemployment rate for Black women to 5.6 percent.
These numbers are highly erratic, so it is likely that the March figures are an aberration. It is also likely that the April 2023 number understated the true unemployment rate for Blacks. Nonetheless, a rise of 1.6 percentage points in the Black unemployment rate almost certainly implies some deterioration in the labor market situation for Black workers. This is discouraging since it is occurring at a time when the overall labor market remains very strong by most measures.
Employment Rate for Prime-Age Workers Stagnating
In 2021 and 2022 we saw sharp increases in employment rates (EPOP) for prime-age workers (ages 25 to 54) back to its pre-pandemic peak, however, there has been little change in the last year. For prime-age women, EPOPs have reached an all time high last fall, 0.6 percentage points above their pre-pandemic level. They have since declined 0.3 percentage points from this peak, but that could just be a random error. For men, the EPOP has mostly been about 0.20.3 percentage points below the pre-pandemic peak, roughly the same as in the year just before the pandemic.
April Jobs Report Should be Cause for Celebration
Matching the late 1960s streak for consecutive months below 4.0 percent unemployment is a reason for celebration. This is a period that is always held up as a time of unprecedented prosperity, where jobs were plentiful and workers up and down the wage ladder were seeing substantial real wage gains.
The record on real wages is not quite as bright as in the late 1960s, but as the pandemic spurt of inflation fades into the distance, the future is looking better. This will be especially true if the economy can sustain a rate of productivity growth that is faster than its pre-pandemic average and there is some reversal of the pandemic shift from wages to profits.
CEPR produces same-day analyses of government data on employment, GDP, and other topics. Follow @DeanBaker13 on X to get his quick-take analysis of government data immediately upon release.
