The U.S. economy added 160,000 jobs in April, and the unemployment rate remained at 5 percent. With an average of 200,000 jobs gained per month in the past three months, April’s job gains are, at a glance, disappointing. Adding injury to insult: February and March’s job gains were also revised downward a combined 19,000.
“It was clearly a disappointing month, but I think it’s important not to overreact to that,” said Michael Strain of the conservative American Enterprise Institute.
And, as we always say here: never put too much stock in one month’s numbers.
“When you look at the report in its entirety, my underlying view of the labor market hasn’t changed,” Strain added. “We’re on a reasonably healthy trajectory.”
Fortunately, wages are finally on the upswing. Average hourly earnings rose 8 cents in April, following a 6 cent gain in March.
“Over the year, we’ve seen wages increase by 2.5 percent,” said Strain. Just how much wages are rising depends on how you look at it, as economist Justin Wolfers of the Peterson Institute pointed out:
Pick your story—Annualized hourly wage growth over
1 month 3.8%
2 months 3.4%
—hints it's rising
3 months 2.4%
6 months 2.6%
— Justin Wolfers (@JustinWolfers) May 6, 2016
Wage growth has been slow over the year — not exactly what you’d expect with 5 percent unemployment — suggesting that there is still slack in the labor market.
Often, economists point to the lagging labor force participation rate to explain slow wage growth.
“People outside of the labor force — and we can think of them as potential workers — are putting a downward pressure on wages,” said Strain. “Firms don’t have to accelerate wage growth to attract and retain workers.”
But that may not be the case for April.
In April, the labor force participation rate ticked down from 63 percent to 62.8 percent. This small decrease is not necessarily a sign of economic weakness but demographic changes.
Ten thousand baby boomers hit retirement age every day. With so many leaving the workforce and retiring, the number of young people joining the workforce has to increase to balance the overall labor force participation rate, said economist Betsey Stevenson, a former member of the president’s Council of Economic Advisers.
“I don’t see labor force participation rising in the next year because of the downward pressure of demographics,” said Stevenson.
So while the labor force participation rate may not rise in the next year, it may not hurt wages. Retirees, after all, aren’t potential workers.
WOMEN IN THE LABOR FORCE
April was kind to female workers. Most of the jobs created went to women.
It was a good month for women:139,000 of 160,000 jobs added went to women.
— Betsey Stevenson (@BetseyStevenson) May 6, 2016
“The reason I tweeted it is because this is a broader trend. Women are continuing to grow as a share of the labor force and will likely be back at half,” said Stevenson.
At the onset of the recession, men got hit the hardest and recovered first. “However, women’s share of the labor force peaked at exactly half in 2009. It hit a low point in 2014 and started to climb back,” said Stevenson.
Today, women make up 49.53 percent of the labor force.
“Often, people treat women’s labor force participation rate as secondary, but it’s important to remember that they hold half of the jobs,” said Stevenson.
THE BOTTOM LINE
If we look long term, the economy looks pretty good. We may have not added as many jobs as we would’ve liked in April, but we did add jobs. Plus, earnings have started to show some life, and the unemployment rate stayed steady.
“The jobs report shows that we still have very strong job growth. And maintaining this kind of steady growth is, in some sense, nothing short of miraculous,” said Stevenson. “It is the longest streak of job growth on record. Every month, I hold my breath and say, ‘Can it possibly add to that record?’ And we continue to do so.”