Job Growth Signals Robust Economy, With Gain of 228,000On December 8, 2017 by Ilene
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.
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.”
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.”
Room to Run?
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.
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.
“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.”
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.
“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.”
Waiting on Wages
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.
“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.
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.
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.
“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.
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 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.
“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 View From Washington
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.
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.
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.