Economy Matches Late 1960s Low Unemployment Streak

May 03, 2024

The economy had its 27th consecutive month of below 4.0 percent unemployment in April. This matches the streak from November 1967 to January 1970, often viewed as one of the most prosperous stretches in US history. It was a period when jobs were plentiful, real wages were rising rapidly, and prosperity was broadly shared as wages rose at all points along the wage distribution.

We are not currently seeing as robust real wage growth as in the late 1960s boom. Productivity has not been growing as rapidly, and we are still recovering from the disruptions created by the pandemic. But the benefits of growth have been broadly shared with workers with the bottom of the distribution seeing the largest wage gains.

Job Growth Slows in the Establishment Survey, Employment Little Changed in Household Survey

The establishment survey showed a gain of 175,000 jobs. This is well below the average of 234,000 jobs over the last 12 months.

Employment in the household survey increased by just 25,000. This further increases the gap between the two surveys. The establishment survey shows an increase of 2,802,000 jobs over the last year, while employment growth in the household survey rose by just 529,000, leaving a gap of 2,273,000.

The most plausible explanation for this gap is that the population controls in the household survey are not fully picking up the recent surge in immigration. However, we may not know the full picture until after the 2030 Census.

Hours Growth and Productivity

After three quarters of extraordinary productivity growth in 2023, growth in the first quarter came in at just 0.3 percent. However, this still left year-over-year growth at 2.9 percent, far above the 1.6 percent average in the five years before the pandemic, and even further above the 1.2 percent rate if we go back a decade. For this reason, even though the first quarter productivity number weakens the case, there is still some cause to believe we are on a faster productivity growth path.

The index of aggregate hours actually fell 0.1 percent in April, with a fall in the length of the workweek more than offsetting the reported job growth. We’re still just at the beginning of the quarter, but the most recent reading of the Atlanta Fed’s GDP now puts second quarter growth at 3.3 percent. If the quarter ends that way, it could lead to another strong quarter of productivity growth. It’s again worth noting that insofar as the establishment survey overstates job gains, productivity growth would be stronger than the official data now indicate.

Wage Growth Slows

The average hourly wage increased at a 2.8 percent annual rate over the last three months. This is down from a rate of just over 4.0 percent for the preceding three months. A 2.8 percent rate of wage growth is well below the rates we saw in 2018 and 2019 when inflation was equal to or slightly below the Fed’s 2.0 percent inflation target.

If productivity growth is in fact on a faster path then we should be seeing considerably more rapid wage growth. This is exactly what happened in the mid-1990s productivity upturn when wage growth picked up from around 2.5 percent to around 4.5 percent. If trend productivity growth is 2.0 percent, then 4.0 percent wage growth would be consistent with the Fed’s inflation target.

It is also important to remember that there was a shift from wages to profits during the pandemic. If this is to be reversed, then we need to see a period of time where wages grow more rapidly than a pace that would be consistent with the 2.0 percent inflation target.

Again, these data are erratic, and we do get a stronger wage growth story if we look at the data over six months (3.8 percent annual rate), but it does look like wage growth is slowing to a pace that is clearly non-inflationary.

Health Care Sector Leads Job Growth

The health care sector was the largest job gainer, adding 56,200 jobs in April. While this was almost a third of the month’s growth it was down slightly from the 63,000 average over the last year. The government sector, which added 72,000 jobs in March, added just 8,000 in April.

Job growth in construction and restaurants also slowed sharply. Construction added just 9,000 jobs after gaining 40,000 in March. Restaurants, which have added an average of 17,300 jobs a month over the last year added, just 7,800 in April. Retail added 20,100 jobs in April, while manufacturing added 8,000 jobs.

Black Unemployment Falls Sharply

There was a 0.8 percentage point jump in the Black unemployment rate in March, driven by a 1.2 percentage point rise in the rate for Black women. These data are erratic, so it was reasonable to expect that these increases would be largely reversed in April, which proved to be the case. The March rise was fully reversed, putting Black unemployment at 5.6 percent. The rate for Black women fell 0.6 percentage points to 5.0 percent, slightly below the 5.2 percent rate for Black men. (The unemployment rate for Black teens is 18.2 percent, which is still low by historical standards.)

The current rate is still 0.8 percentage points above the 4.8 percent all-time low hit last April. This level is still low by historical standards, but it is disappointing to see this increase compared to last April in a labor market that remains very strong by most measures.

Prime Age Employment Rate for Women Hits Record High

The employment-to-population ratio (EPOP) for prime-age women hit a new record high of 75.5 percent in April. The overall rate for prime-aged workers edged up 0.1 percentage points, as the rate for men fell by 0.3 percentage points to 86.1 percent. It is now slightly below its 86.4 percent average for 2019.

Full-Time Employment Jumps

Full-time employment increased by 950,000 in April. This is likely a measurement story and not really a big deal in any case. More than 80 percent of part-time employment is voluntary, so who cares if people prefer part-time? Anyhow, for those concerned about weak numbers for full-time employment, it's way up.

Fall in Share of Unemployment Due To Quits

The share of unemployment due to voluntary quits fell to 12.0 percent, unusually low given the unemployment rate. It averaged over 13.6 percent in 2019.

Another Very Solid Jobs Report

The Fed should be absolutely ecstatic over this jobs report. The slower job growth is at a pace that most economists would view as sustainable. The recent pace of wage growth is certainly not inflationary and the data in this report are consistent with a more rapid productivity growth story.

In fact, if we extrapolate from the last three months, there is cause to be worried that wage growth is too slow. Also, the decline in the share of unemployment due to quits suggests a reduction in workers’ confidence about their labor market prospects. At this point, there is more basis for concern on the weakness side than an excessive strength story.

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