April 05, 2024
This was another very solid month for jobs growth as the economy added 303,000 jobs, bringing the gain over the last year to 2,927,000. Unlike in prior months, the household survey also showed a solid picture, with an increase in employment of 498,000 and a dip in the unemployment rate to 3.8 percent. This is the 26th consecutive month where the unemployment rate has been below 4.0 percent, one less than the late 1960s streak.
Household v. Establishment Survey
Over the last year, employment in the household survey has grown by just 642,000. This is more than 2.2 million behind job growth in the establishment survey. The cause of this anomaly is not clear, but the bulk of the other labor market data is far more consistent with the establishment survey. It is also worth noting that if the household survey employment growth is closer to the mark, then productivity growth is far more rapid than the current data show.
Wage Growth Steady at 4.1 Percent
The annualized rate of hourly wage growth over the last three months was 4.1 percent, the same as the rate over the last year. This may be slightly faster than would be consistent with the Fed’s 2.0 percent inflation target, although this would not be the case if we are on a faster productivity growth path.
One slightly discouraging aspect of this month’s data is that it seems that the momentum for faster wage growth at the bottom end of the wage distribution is dwindling. The average hourly wage for non-supervisory workers in leisure and hospitality rose just one cent in March and is actually down by one cent from its level three months ago.
Hours and Productivity
The index of aggregate weekly hours jumped by 0.5 percent in March, as the strong job growth was coupled with an increase in the length of the average workweek. However, after two weak months, hours for the quarter as a whole increased at just a 1.0 percent rate from their fourth quarter level. With GDP likely coming in well over 2.0 percent, this should imply another quarter of healthy productivity growth.
Job Growth Broadly Based
The strong job growth for March was widely spread across sectors, although health care again led the way with a gain of 72,300 jobs. That is somewhat above its average of 62k a month over the last year. Construction and restaurants were also big gainers, adding 39,000 and 31,500 jobs, respectively.
The government sector was also a big job gainer in March, adding 71,000 jobs in total. The bulk of this gain was due to 49,000 jobs added at the local level.
Manufacturing Employment Flat in March, but Autos Add 6,500 Jobs
Manufacturing employment has weakened in the last year as higher interest rates have likely had some effect. For the year, employment in the sector as a whole is up just 24,000. However, the auto industry has fared much better with a gain of 44,900 over the last year. Employment in the industry is now 57,400 above its pre-pandemic peak.
Prime Age Employment Holds Steady
The employment rate for prime age workers (ages 25 to 54) was unchanged at 80.7 percent. This is slightly below the peak of 80.9 percent hit last July, but 0.1 pp above its pre-pandemic peak. The rate for prime age men edged up to 86.4 percent, but that is still 0.3 pp below its pre-pandemic peak. For prime age women, it fell to 75.0 percent. That is 0.3 pp below its all-time highs hit last fall, but still 0.3 pp above its pre-pandemic peak.
Black Unemployment Rises to 6.4 Percent
The employment rate for Black workers jumped 0.8 pp to 6.4 percent, the highest level since August of 2022. The biggest factor in this increase was a 1.2 pp jump in the unemployment rate for Black women to 5.6 percent. These numbers are highly erratic, so it is likely that the March figures are an aberration, but this is a cause for concern.
Share of Unemployment Due to Voluntary Quits Rises to 12.7 Percent
The share of unemployment due to people who quit their jobs has historically been a good measure of labor market strength since it indicates the willingness of workers to leave one job before they have another lined up. This figure peaked at 16.0 percent in the tight labor market of 2022. It had fallen to 11.0 percent in February, which seemed inconsistent with other measures of the strength of the labor market. The 12.7 percent March figure is still below the 13.4 percent average for 2019, but consistent with a healthy labor market.
Share of Multiple Job Holders Rises to 5.4 Percent, but Still Below 1990s Peaks
The share of multiple job holders edged up to 5.4 percent, 0.1 pp above its pre-pandemic peak. This is actually a pro-cyclical variable, with the percentage rising when the economy is strong. The pre-pandemic peak of 5.3 percent was hit in September and October of 2019. The highest levels on record were above 6.0 percent in the late 1990s boom.
Solid Report, but Is the Economy Growing Too Fast?
It is hard to find much not to like in this report. The rise in Black unemployment is a cause for concern, but it is likely that it is an aberration that will be reversed next month. We are at the edge of matching the extraordinary period of low unemployment we saw in the late 1960s. Low unemployment is providing opportunities for workers who would not otherwise have them.
The major concern of analysts looking at these data is that the economy might be growing too rapidly. Certainly, few people would consider the 303,000 jobs added in March to be a sustainable pace of job growth. It seems that we are likely shooting in the dark to some extent on this point as job creation has for some time exceeded the pace that would have been viewed as sustainable, without a notable uptick in labor force participation or drop in the unemployment rate.
Immigration is clearly adding a lot of people to the labor pool, and it is likely that our measures are underestimating the size of this addition. The key issue is whether labor demand is rising so rapidly as to create serious problems with inflation.
The key factors indicating otherwise is that the pace of wage growth does not appear to be accelerating and the profit share of income actually increased in the most recent quarter. The story can always change going forward, but for now this looks like a very healthy economy.
