If the Economy Slows, Can the US Labor Market Slack Widen?
Although the employment-to-population ratio shows a clear rising trend, the labor force participation rate is trending down. Some of that fall can be attributed to people leaving the workforce completely.
While the US labor market is technically close to full employment, it’s not quite there yet. Further, slack persists in the market.
A falling unemployment rate indicates higher business activity. This translates to overall growth supported by higher consumer and business spending.
The average hourly earnings clearly became less steep after the crisis, implying lower wage growth. Average hourly earnings for all employees grew just 2.0% compared with a year ago.
On its own, the unemployment rate doesn’t paint a complete picture of the labor market’s state. To understand the labor market better, we need to see if there’s any slack.
The unemployment rate is one of the major economic indicators. It influences the strength of the economy and its production function.
While job creation is robust, wage growth is not. Average hourly earnings for all employees grew just 2.0% compared to a year ago.
Despite the negatives, the jobs market is strong. The economy has been producing over 200,000 jobs consistently over the last ~18 months.
The labor market recovery in the US has gained a couple of elements—improving wages and labor force. In May, non-farm payrolls rose by 280,000.
It appears that the job market has just overcome a minor roadblock. Reports for June and July will help establish this trend and give the FOMC more confidence.
The ADP national employment report (or NER) showed that the private sector added 201,000 jobs in May 2015.
US non-farm payrolls increased by a robust 280,000 jobs in May 2015, the strongest increase this year.
The ADP NER (National Employment Report) showed that the private sector only added 169,000 jobs in April 2015—the lowest since January 2014.
US non-farm payrolls increased by just 223,000 jobs in April 2015. This was a rebound from the previous month, but it was lower than anticipated.
The US labor market has been the poster child of economic indicators for monetary policymakers. The FOMC was gung-ho about the labor market until its March report.
The jobless claims report serves as a good indicator for labor market conditions in the US. For the week ending April 25, there were about 262,000 new claims.
Wage growth could rise soon since big firms are beginning to increase wages. Walmart announced that it was raising its minimum wage to $9 an hour.
Policymakers will have little reason to adopt an aggressive stance with both labor market indicators and inflation showing weakness.
The minutes of the FOMC’s (Federal Open Market Committee) March 2015 meeting revealed that policymakers were happy with improvements in the labor market.
ADP’s NER gives an early taste of what the non-farm payrolls may look like. However, keep in mind that the non-farm payroll report has a wider base.