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May 3, 2019

March U.S. Jobs Report: Are we in a Goldilocks Economy?

May 3, 2019

March U.S. Jobs Report: Are we in a Goldilocks Economy?


economic-straight-talk

A Goldilocks Economy is an economy that is neither too hot or cold, in other words, it sustains moderate economic growth and has low inflation, which allows a market-friendly monetary policy.

  • Notable job gains continue to bolster professional
    and business services (up 76,000 jobs), which comprised about one fifth of last
    year’s employment growth. Other sectors experiencing notable growth include
    construction (up 33,000 jobs), healthcare (up 27,000 jobs), and social
    assistance (up 26,000 jobs). Retail trade employment, particularly in general
    merchandise stores, are continuing to weaken.
  • According to a new CompTIA report, the information-technology sector added 18,900 jobs in April, with hiring in technology services, custom software development and computer systems design leading April job growth. Software and application developers continue to be the most in-demand talent companies are looking to hire, with 78,000 job postings last month.
  • The unemployment rate, falling to 3.6 percent,
    hit another 50-year low (the lowest rates since 1969). Nevertheless, the
    decreased unemployment rate primarily stemmed from a drop in labor force
    participation, which has been improving in recent years but was inevitably
    going to decline due to demographic factors like retiring baby boomers and lack
    of population growth. In addition, immigration of foreign-born workforce has
    slowed dramatically. Over the past 10 years, immigration has been a significant
    contributor to the domestic labor force, accounting for half of labor force
    growth. While labor force participation among women has returned by to
    pre-recession rates, male participation rates are still well below. Women’s
    participation has been fueled by growth in industries that generally employ a higher
    share of women, such as healthcare and education, while men’s participation has
    been held back by a decline in manufacturing jobs and factors such as the opioid
    crisis and lower graduation rates than women.
  • Wage growth has inched up, 0.1 percent, in
    line with expectations, but still relatively subdued at this point of the labor
    market cycle. A recent surge in productivity is one of the main arguments for
    the lack of compensation growth. Overall, labor income is running at about 4
    percent annualized growth rate. However, low inflation is helping improve real
    wages and will keep bolstering consumer spending.
  • Nevertheless, low inflation is the reason the
    Federal Open Market Committee (FOMC) decided to keep the fed funds rate
    unchanged earlier this week. The FOMC’s decision was largely based on slower
    growth in household spending and business fixed investment, and consequently
    lack of overall inflation which the FOMC believes will remain muted. While
    March’s decision to keep the funds rate unchanged was primarily due to concerns
    over lack of global growth, their most recent statement shifted the concern to
    low inflation expectations.
  • FOMC is expecting to see continued economic
    growth through 2019 supported by a rebound in domestic demand, putting GDP around
    2.5 percent — a slowdown from 2018, but still above the economy’s potential
    rate of growth. And while some market observers, and the president, have been
    looking for some policy easing from the Federal Reserve, such as lower rates, the
    Fed’s statement suggests continued patience and no changes to the fed fund’s
    rate through the remainder of this year, and possibly a good portion of 2020.
  • In looking at future job growth, the U.S.
    Bureau of Labor Statistics Job Opening Labor Turnover Survey released earlier
    this month said there were 7.1 million job openings at the end of February.
    While the number of job openings declined from recent highs, the number is
    still above levels seen a year ago and since 2000 when the data history began.
    Job openings decreased from the month before, mostly in accommodation and food
    services (-103,000), real estate and rental and leasing (-72,000), and
    transportation, warehousing, and utilities (-66,000). The number of job
    openings fell in the Northeast, South, and Midwest regions.
  • Filling open positions remains a concern for
    companies. According to NABE’s Business Conditions Survey, 52 percent of
    respondents reported shortages of skilled labor at their firms—an
    increase from 45 percent a year ago.