May 30, 2023
We have been seeing the key data jump around in the job reports, not only from one month’s data to the next, but also between initial reports and the revised data in subsequent reports. In particular, we have seen substantial upward revisions to wage data in recent months. Average hourly earnings in February were originally reported as $33.09. After two revisions, they are now reported at $33.11. The March wage figure was originally reported at $33.18. With the April revision, it stood at $33.20.
These revisions make it more difficult to get a clear picture of where the economy, and in particular trends in inflation, are going. With the originally reported February and March data, it looked like wage growth had slowed to a pace roughly consistent with the Fed’s 2.0 percent target. With the revisions and the more rapid growth in April, we are still looking at considerable slowing from the pace we saw at the start of 2022, but the 4.2 percent annualized rate over the last three months would put us closer to 3.0 percent than 2.0 percent.
Anyhow, we have to live with the fact that our data are always subject to some error and that revisions, especially to the wage data, can alter our picture of the economy. Naturally, much of the focus of this report will be on the average hourly wage, but recent experience drives home the risks of making too much of a single month’s data.
Hours
The recent trends in the index of aggregate hours has not received the attention it deserves. In recent months, we have seen a substantial shortening of average workweeks. As a result, the increase in aggregate hours has been far less than the increase in jobs. The index of aggregate hours has actually fallen in the last three months.
Part of the reason for this decline was the extraordinary jump reported for January; but when we go further back, we still see a sharp slowing. The index has risen just 0.4 percent since October, a 0.9 percent annual rate of increase.
This matters for three reasons. First, hours worked is most directly measuring the demand for labor, not jobs. If we are concerned that the demand for labor is growing too rapidly, we need to look at hours worked. If employers are shortening workweeks, presumably they will not be hiring rapidly.
The second issue is that many employers had increased the length of the workweek during the pandemic recovery when they were unable to hire more workers. The recent shortening of the workweek indicates that difficulty in hiring is becoming less of an issue.
The third point is that hours is the denominator in the productivity data. Productivity growth was negative in the first quarter. This is likely an aberration in a series that is often erratic, but the post-pandemic path of productivity growth will be important for both inflation and longer-term growth in living standards. There are reasons for expecting both a slowdown and a pickup, but every month of data provides more information on this puzzle.
Jobs
The rate of job growth will, of course, be a focus. The 253,000 new jobs reported in April was likely somewhat faster than can be sustained in an economy that is close to full employment, but it was accompanied by large downward revisions to the prior two months’ data. The job number reported for April was just 104,000 higher than what had previously been reported for March.
Given the error in the survey, we are less certain of the month a job was created than the total at a point in time. It is certainly possible that the rate of job creation has already slowed more than the April job growth figure indicates. A lower number in May will support the view that job growth is nearing a sustainable pace.
Is the Pandemic Catch Up Over?
The mix of job gains reported for April looked pretty much like a pre-pandemic month. We had been seeing outsized growth in sectors like hotels and restaurants that were especially hard hit by the pandemic. The May data will provide more evidence of whether we are back on a normal growth track.
Unemployment’s Half-Century Low
The April data showed the unemployment rate falling back to the 3.4 percent half-century low reached in January. This is great news for working people, and it also means that we have been able to have a substantial reduction in the inflation rate without a rise in unemployment.
With inflation still above the Fed’s target, it’s too early to declare victory on this issue. However, every month of continuing low unemployment is good news.
Record Low Black Unemployment
The 4.7 percent unemployment rate reported for Black workers in April was the lowest on record, as was the 4.5 percent rate for Black men. These numbers are erratic, so it would not be surprising if they rise some in May. Clearly the labor market for Black workers has been strong in recent months, even if these numbers are still far higher than the rates for whites. Another strong month would suggest the April data were not just an aberration.
Prime Age Employment
The employment rate (EPOP) for prime age workers hit 80.8 percent in April, 0.2 pp above pre-pandemic peak. For women, the rate stood at 75.1 percent, 0.4 pp above its pre-pandemic peak, while the 86.4 percent rate for men was 0.4 pp below its pre-pandemic peak. Clearly there is no story of large numbers of people dropping out of the labor force due to the pandemic. However, the data are consistent with the continuation of the longer-term story of declining labor force participation by prime age men.
Unemployment Due to Voluntary Quits
The share of unemployment due to voluntary quits hit record highs last year, as workers were confident enough in their labor market prospects that they felt they could leave a job without having a new job lined up. This figure fell to 13.8 percent in April. This is still relatively high, but a full 2.0 percentage points below the peak hit last September. It does not indicate an excessively strong labor market.
Another Goldilocks Report?
It was hard to see much in the April data to complain about, but with the Fed’s rate hikes and the turmoil in the banking industry, we know that the economy will face some rough times over the course of this year and into 2024. The big question is how long the labor market can stay healthy in spite of the turbulence.
