by Cliff Waldman, Chief Economist
As I have recently noted, U.S. uncertainty is the risk for the global economic picture. The economic numbers have been a bit too soft for comfort. Risks from the retail sector and from political challenges that could impede the progress of promised economic policies have exacerbated the sense of unease.
As has often been the case in recent years, the monthly U.S. employment report provides a glimmer of light in a gray picture. A net gain of 222,000 payroll jobs in June markedly exceeded the expectations of analysts who projected that slow economic growth would have some impact on employment gains. It hasn’t. With upward revisions for April and May, net job gains have averaged 180,000 for the first six months of this year, compared to an average of 187,000 for all of 2016, an insignificant difference when accounting for the sampling error.
What to make of a risky picture but strong job gains? The intellectual challenge for economists, the Fed, and for U.S. government officials stems from the fact that the post-Great Recession labor market has been, to say the least, a study in imbalances. We can’t analyze jobs data in a normal fashion because the structural backdrop for these employment gain results has been anything but normal. The U.S. is confronting its lowest labor force participation rate in nearly four decades, with no sign of any real change. Part of the participation problem is related to social issues, beyond the purview of economics. At the same time, we are living through one of the most sluggish periods for labor productivity growth of the post-World War II era. On top of all of this, the odd persistence of very low inflation in recent years has likely had some impact on wage negotiations, with implications for both job and wage gains.
For now, the U.S. numbers suggest a measure of stability. The relatively positive employment and manufacturing reports that were released this holiday week should quell fears that the U.S. is sliding into a downturn. But the socioeconomic issues associated with a historical low in labor force participation, and the economic growth and wage problems associated with very weak productivity growth simply cannot be ignored. Weak wage gains and underutilized workers are dotting the U.S. landscape. We need to remain aware of these considerations even when celebrating decent jobs reports.