The return of the ‘Misery Index’
The United States is currently experiencing its fastest rate of inflation, year over year, since mid-1982. Those of you who are old enough to remember that might also remember the…
Last week’s jobs report was quite a shock, but a pleasant one. As the Wall Street Journal reported,
…the American economy created 250,000 new jobs last month, including 246,000 in private industry. Average hourly wages rose again and are now 3.1% above a year ago, the fastest increase in a decade.
The economy has now added 218,000 jobs on average over the last three months, up from 210,000 over the last year, as the unemployment rate held steady at 3.7%. That’s remarkably strong labor growth for an expansion that is nine years old at what some economists claim is already full employment.
Apparently thousands of Americans have been waiting for the right job, or a better paying one, because the civilian labor force grew by 711,000 in October and four-fifths of them found jobs. Job growth was especially robust in leisure and hospitality (42,000), health care (35,600), manufacturing (32,000) and transportation and warehousing (24,800).
Hurricane Florence, which struck the Carolinas in September, has caused some noise in the data. But the big job gains in October offset tepid payroll growth in September. Labor force participation ticked up 0.2 percentage points last month to 62.9%, which is at the higher end of its range in recent years.
More auspicious, the labor participation rate for prime working-age individuals (ages 25 to 54) has risen 0.7 percentage points to 82.3% and for teens has increased to 35.5% from 34.7% over the last year. This labor-force growth has been offset by a decline in participants ages 20 to 24, perhaps due to more students relying on loans and grants to pay for college.
Labor force participation for those without a high school diploma has also increased to 47.7% from 46.2% over the last year as employers continue to pull lower-skill workers from the sidelines. Teen unemployment has fallen to 11.9% from 13.7% since October 2017. So much for growth benefiting only the rich.
Some are saying the 3.1% increase in average hourly wages isn’t all that great because it is measured off a bad month a year earlier. Then again, wage growth has averaged 3.4% over the last three months, and 3.3% for the last six months, which would fit with the faster GDP growth and faster productivity gains in the last two quarters.
It’s also good news that average hourly wages for production-level workers have climbed 3.9% and 4.5% for manufacturing employees over the last three months. The Labor Department’s compensation survey this week showed that wages and salaries over the last year have been growing fastest for those in lower-skilled fields such as leisure and food service (3.8%) and sales and transportation (3.7%). Over time more business investment will lead to greater worker productivity, which will show up in higher wages.
Celebrations also came from more unexpected quarters. A Chairman of President Obama’s Council of Economic Advisers tweeted
I’m not seeing anything bad in this jobs report. Strong hourly wage growth, even stronger weekly wage growth, higher labor force participation, lower broader underemployment, while job growth bounced back from last month and the unemployment rate remained low.
— Jason Furman (@jasonfurman) November 2, 2018
A former chief economist and economic adviser to Vice President Biden…
Pretty much everything you could want in a monthly jobs report. Payroll gains way better than expected, nice pop in labor force participation, wage growth continues to strengthen, finally beating inflation (real gains!). Score 1 for "room-to-run" crowd!
— Jared Bernstein (@econjared) November 2, 2018
The senior economic correspondent of the New York Times…
The economics columnist for The Economist…
Great jobs report this morning. And you know what? It ought to make you angry. Like really angry. Because here we are, more than decade after Lehman, and *12 years* since the last peak in the prime-age employment rate, and we're still not at full employment.
— Ryan Avent (@ryanavent) November 2, 2018
Minnesota is getting in on the boom
We are seeing the benefits of this in Minnesota. As WCCO reported last week,
Analysts cite low unemployment as one reason why retailers are struggling to find employees, causing companies to add incentives for people looking to make some extra money this holiday season.
WCCO compared eight companies, six retailers and two mail carriers, to see what they had to offer.
Target is hiring the most people state-wide, offering 10,000 Minnesotans seasonal work, 7,000 of which are in the Twin Cities.
Amazon has the highest starting pay among retailers, at $15 per hour.
Both Target and Amazon offer holiday overtime pay.
Macy’s and JCPenney both offer 20 percent off or more for employee discounts. Target also gives 20 percent off of its wellness merchandise.
UPS needs mail handlers, drivers, and office clerks, and, like Amazon, comes with a $15 per hour starting wage. It also offers healthcare benefits and tuition assistance.
The U.S. Postal Service starts at $17 per hour. It too offers certain benefits, depending on the position.
Its policy, not destiny
Back in 1979, President Jimmy Carter gave his famous “malaise” speech in which he urged Americans to accept the poor economic performance of the 1970s as the new normal which the country was doomed to. Two years later Ronald Reagan was elected president and America experienced something of an economic renaissance. Something similar has happened recently. In 2016, President Obama said that some manufacturing jobs “are just not going to come back”. Indeed, in the last 22 months of his administration, manufacturing employment in the US increased by 0.5%, or a 0.02% monthly average. In the first 22 months of the Trump administration, manufacturing employment in the US has increased by 3.3%, or a monthly average rate of 0.16%, as shown on Figure 1.
Figure 1: All Employees: Manufacturing, March 2015 to October 2018, millions
Source: Federal Reserve Bank of St. Louis
When politicians say we are fated to some grim economic future, what they generally mean is that they have no idea how to help us achieve a better one. We are no more fated to slow economic growth now than we were in 1938 when the economist Alvin Hansen developed the ‘Secular stagnation hypothesis‘ to rationalize the slow economic growth and high unemployment which persisted despite Presidents Roosevelt’s New Deal programs.
This is because the source of economic growth is new ideas, and there is no reason to assume that there is any limit to those. What we need are the economic policies in place to unlock these ideas, to encourage them and facilitate their application. That way we can grow our economy to the benefit of all Americans.
John Phelan is an economist at the Center of the American Experiment.