Unemployment Below 4%
April was a decent month for job markets, with a job growth of 164,000. While this was below expectations, March numbers were revised upwards, from 103,000 to 135,000, and the underlying detail of the report showed strength. Job growth has averaged a solid pace of 208,000 per month over the last three months.
The unemployment rate declined to 3.9%, the lowest since 2000. For college graduates, unemployment is now at 2.1%, indicating a tight labor market. The wider “U-6” measure of underemployment, which also includes people working part-time while looking for full-time work, declined to 7.8% and is now below the pre-crisis average of 8.9%.1 Still, wage growth was surprisingly moderate in April, with only a 0.1% rise in average hourly earnings.
Wage Stats Confuse
The report indicates that wage pressure remains surprisingly benign, even though many metrics are suggesting a tightening labor market.
Two factors are worth keeping in mind:
- With Baby Boomers retiring, to a large extent replaced by workers paid less on average per hour, growth in the average hourly wage, the headline number, is held back even though wage growth experienced by the median worker is higher.
- The monthly wage statistics do not reflect bonuses, which have picked up recently, and benefits. When looking at employee compensation, including bonuses and benefits, growth has been quite a bit higher over the last six months.
Wage Growth (May 2008 – April 2018)
Sources: Thomson Reuters Datastream, New York Life Investments, as of 5/4/18. Past performance is not indicative of future results. It is not possible to invest in an index. Index definition can be found at the end of this post.
The Bottom Line
A job market cruising along with solid trend growth is good news for consumers and the economy. For markets, it is also encouraging that even at an unemployment rate below 4%, wage inflation is not showing signs of overheating. Goldilocks may still have some of that “neither too hot, nor too cold, but just right” porridge left.
1. Bloomberg, 1994 – 2007.
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Index performance is shown for illustrative purposes only and does not predict or depict the performance of the Funds. Indices are unmanaged, include the reinvestment of dividends, and cannot be purchased directly by investors. Past performance does not guarantee future results.
The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year.
The employment cost index (ECI) is a quarterly economic series detailing the changes in the costs of labor for businesses in the United States economy. The ECI is prepared by the Bureau of Labor Statistics (BLS), in the U.S. Department of Labor.
The U-6 rate is the unemployment rate that includes discouraged workers who have quit looking for a job and part-time workers who are seeking full-time employment. The U-6 rate is considered by many economists to be the most revealing measure of a country’s unemployment situation since it covers the percentage of the labor force that is unemployed, underemployed and discouraged.
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