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Jobs Report

Economists break down 'strong' February jobs report

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The Department of Labor announced Friday that February was the strongest month of job creation of Donald Trump’s presidency as more Americans joined the workforce and the economy inched closer to full employment, but economists say wages are still lagging behind and tariffs the president plans to impose could reverse some positive trends.

The 313,000 jobs added in February marked the biggest monthly gain since mid-2016 and the 89th consecutive month of job growth. For the fifth straight month, unemployment held steady at a 17-year low of 4.1 percent.

February 2018 Jobs Report by Stephen Loiaconi on Scribd

“First off, it’s hard not to be impressed with the raw number…. It’s a strong number, no two ways about it,” said Dean Baker, senior economist at the Center for Economic and Policy Research.

Experts see little in Friday’s report that causes any concern.

“I think you could call a lot of economists before you got to a complaint about this particular report,” said Michael Madowitz, an economist at the Center for American Progress.

There have been doubts about how long the economy can keep chugging along at the rate it has during the recovery from the Great Recession, but the February jobs data indicates continued expansion is still very possible.

“The fact that you have this many people coming off the sidelines in what you already thought was a pretty good economy is just a really good sign,” Madowitz said.

The labor force participation rate increased to 63 percent in February as 806,000 people joined the civilian workforce. Prime age employment (ages 25-54) rose to 79.3 percent, the highest level since June 2008.

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“4.1 percent [unemployment] isn’t measuring all the slack that’s out there,” said Elise Gould, senior economist at the Economic Policy Institute, indicating those numbers still have space to grow.

“This suggests that a booming economy can get more people to start looking for work,” said Aparna Mathur, a resident scholar in economic policy at the American Enterprise Institute.

Employment rates for most demographic groups held relatively steady from January, but black unemployment declined by nearly a full percentage point to 6.9 percent, close to the record low it hit in December.

Job gains were seen in most sectors of the economy. Construction employment rose by 61,000 jobs, retail jumped by 50,000, manufacturing added 31,000, and mining went up by 9,000. Over the last year, manufacturing has added a total of 224,000 jobs, construction employment has increased by 300,000, and 67,000 new mining and logging jobs were created.

“When you look across industries, you’re seeing strength across the board,” Gould said.

None of this is to suggest there is no room for improvement. Wage growth remains one of the most underwhelming data points of the economic recovery. After a spike in January, year-to-year wage growth slipped to 2.6 percent in February.

“It speaks to the weakness of the labor market,” Baker said.

If employers know there are more employable people out there looking for jobs, workers have less leverage to demand raises and negotiate better salaries. Workers also have less confidence that they can easily go out and find another job.

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“One of the things I and others have often looked at is the percentage of unemployment that’s due to people voluntarily quitting their job,” Baker said.

In February, that percentage was 11.6, up from 10.9 in January and December. For comparison, Baker noted that it was more than 12 percent prior to the recession and over 15 percent in 2000.

On the positive side, the slowing of wage growth may allay fears investors had after January’s report that the economy was picking up too much steam and the Federal Reserve would accelerate interest rate hikes. The stock market responded positively to Friday’s report with gains in the S&P, Dow Jones, and Nasdaq in early morning trading.

Mathur pointed to another mitigating factor: many of the new jobs likely do not pay very much.

“It’s not really something negative,” she said. “What we did see this month was an increase in low-wage sectors like retail.”

Added low-wage jobs can drag down the overall average in wage growth, even though the hiring itself is a good thing. Retail employers have reported growing pressure to raise wages as well.

According to Business Insider, executives at Walmart, Target, Kroger, and other major retailers recently told analysts on quarterly earnings calls that they are investing more in wages to remain competitive.

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"Over time, as jobs became very plentiful, that starting wage became more important. So, we've meaningfully increased starting wages across the company,” Kroger CEO Rodney McMullen said.

The White House touted the “blockbuster” monthly jobs report Friday as proof that “President Trump’s policies and tax cuts are getting Americans back to work, creating growth, and restoring confidence in the U.S. economy.”

The Department of Labor is also crediting the president and his policies for the hiring surge.

“President Trump’s tax reform continues to boost economic confidence with more than 400 companies handing out bonuses, raises, or other benefits to more than 4 million Americans,” said Labor Secretary Alexander Acosta in a statement. “Today’s report shows that average hourly earnings significantly increased in February and have increased by 2.6% over the last year. We saw positive movement in the labor force participation rate, and we would like to see that continue over the coming months.”

Mathur sees some truth in that, because not much else has changed about the job market besides the implementation of tax reform from the preceding months when the economy was stable and growth was averaging around 200,000 jobs a month.

“I do think it could have something to do with the White House and the fact that we’re talking about such a massive tax cut kicking in this year and businesses are feeling more positive,” she said.

Other economists are skeptical we are witnessing the effects of tax rate reductions on employment.

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“I don’t think this is related to tax cuts,” Gould said.

According to Baker, higher business investment and faster retail sales growth would be expected if the tax cuts were driving up hiring.

“When you look at the other components, the other data we’ve been getting, there’s not really evidence,” he said.

Tariffs on foreign steel and aluminum announced by President Trump Thursday could have an impact on the job market in the months ahead. However, experts say it is difficult to know what that impact will be until it is clearer which countries will actually be subject to the penalty.

“In general, the specifics of how they’re going to do this are hard to predict, as are the reactions,” Madowitz said.

He expects companies that make steel and aluminum will benefit from the reduced competition with foreign imports, but companies that use the metals will face higher prices.

“Many, many more jobs in the manufacturing sector use steel than make it,” he added.

A study conducted by the Trade Partnership estimated that about 33,500 new jobs would be created in the steel and metal industries, but nearly 180,000 jobs would be lost elsewhere in the economy, resulting in a net loss of about 146,000 jobs. However, those figures did not account for exemptions already granted to Mexico and Canada or any other allies who might be spared in the future.

“We’ll see how concrete these tariff negotiations are and what that actually means for companies,” Mathur said, “but it’s not good for the economy to impose these tariffs at the border when we know it’s not the way to create jobs.”

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If implemented as Trump has described them, she fears the policy will reverse the boost in the economy that she attributes to tax reform.

“I do think that’s a dampener on all the positive effects we might have seen from the tax cuts,” she said.

Gould does not anticipate that the tariffs will shake up the labor market much one way or the other.

“It’s not clear that these will be long-term or that businesses will make decisions that will change employment to any large extent,” she said.

As the unemployment rate fell below 5 percent in 2015, experts predicted the economy was nearing full employment. Three years later, with unemployment hovering just above 4 percent, Madowitz acknowledged there is some uncertainty about what full employment looks like.

“The honest thing to say is we’re roughly at 4 percent unemployment,” he said. “I know few economists who will tell you full employment is way, way more people working than that.”

However, the rising wages and inflation experts expect under full employment are not happening, and each month continues to bring more workers into the job market.

“We’re far enough away [from full employment] that we’re not seeing the wage growth that we’d like,” Gould said.

The prime age employment level is a key factor in that because, in a strong economy, those people should have little reason not to work. Even at its highest level in 10 years, that rate is still 2.5 percentage points below where it was in 2000.

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Historically, Mathur said, economists would have expected to hit full employment when unemployment reached around 4.5 percent, but the February jobs report indicates there is still a pool of workers out there waiting for an opportunity.

“It’s very hard to say how many more workers would be drawn into this economy if it continues to boom,” she said.

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