Strong jobs report, decades low unemployment rate punctuate week of good economic news

Today’s employment report – 263,000 jobs added; 3.6 percent unemployment rate  – put a bold exclamation point on a week of positive economic news, including a sharp uptick in labor productivity. 

Let’s review.

The employment numbers again shattered expectations. The New York Times reports,

  • 263,000 jobs were created last month. Analysts had expected a gain of 190,000 jobs, according to Bloomberg.

  • The unemployment rate was 3.6 percent, the lowest in half a century. The rate was 3.8 percent in March.

CNBC writes,

Unemployment was last this low in December 1969 when it hit 3.5%. At a time when many economists see a tight labor market, big job growth continues as the economic expansion is just a few months away from being the longest in history…

“Leaving aside month-to-month fluctuations, the labor market is still very strong, adding almost double the number of workers needed to keep pace with new entrants to the labor force in any given month,” said Eric Winograd, AllianceBernsetein’s senior economist. “Wages may have been slightly tepid this month relative to expectations but are still growing at just about the highest rate this cycle, and the unemployment rate is at multi-generational lows.”

This report follows yesterday’s NFIB report that small business hiring remains strong.

Small businesses continue to be a critical strength for the economy, with a seasonally-adjusted net 20 percent of owners reporting they are planning to create new jobs, according to NFIB’s monthly jobs report, released today. In April, 31 percent of small business owners plan to increase employment and three percent are planning reductions. With few owners reducing employment, there’s an indication that the initial claims for unemployment will remain historically low.

The job growth coincides with reports that the long-awaited boost in labor productivity has finally caught hold. Tuesday Bret Swanson speculated at AEI that we were possibly at the leading edge of a productivity boom.

Attempting to smooth away quarterly fluctuations, I charted the average of the trailing eight quarters of nonfarm labor productivity growth. The result, which uses the consensus estimate for the first quarter of 2019, shows a distinct upward slant over the past two years. Increased business investment, meanwhile, suggests the productivity and wage trends might continue…

By traditional measures, the economic expansion is long in the tooth — historically long, in fact. The probability of recession should be rising. Instead, we seem to have shifted into a higher gear. With luck, over the next few years, we’ll witness the demise of the demise of US growth.

Swanson foreshadowed Thursday’s release of Q! productivity information. It turned out to be better than the consensus estimate, as the Wall Street Journal reports.

U.S. workers’ efficiency improved during the past year at the best pace in nearly a decade, laying groundwork for stronger wage growth and continued economic expansion.

The productivity of nonfarm workers, measured as the output of goods and services for each hour on the job, increased at a 3.6% seasonally adjusted annual rate in the first quarter from the prior three months, the Labor Department said Thursday. From a year earlier, productivity rose 2.4%. That was the best gain year-over-year since the third quarter of 2010, when the economy was just emerging from a deep recession.

The WSJ notes the timing significance of this growth.

Accelerating improvement nearly 10 years after the recession ended raises hopes that a combination of more efficient workers and Americans rejoining the labor force could provide necessary fuel to extend one of the longest expansions in the post-World War II era.

Caveats:

Many economists expect the pace of output gains to cool from the first quarter’s robust 3.2% pace. The Federal Reserve in March projected 2.1% growth for all of 2019 and further slowing in subsequent years.

Last quarter’s exceptionally strong improvement is unlikely to be consistently repeated because output gains will slow as stimulus from tax cuts and federal-spending increases fades, said Barclay’s economist Blerina Uruçi. But the U.S. economy appears to have moved into a trend of improved productivity after a very weak period, she said.

The Associated Press writes,

With the strong gain in the first quarter, productivity over the past year has grown by 2.4%, the best four-quarter gain since a 2.7% rise in 2010.

A good week.