Summing Up the Data on Jobs and Wages

Recent weeks have seen a raft of pretty bad economic news. Last month’s jobs report showed a marked slowdown in employment growth—with 126,000 new jobs reported in March, down from the 269,000 average pace of growth that had characterized the previous 12 months. And gross domestic product (GDP) in the first quarter was essentially stagnant—rising at just a 0.2 percent annualized rate. March trade data showed an enormous rise in the trade deficit, which will likely drive the revised numbers on GDP into negative territory.

Given this backdrop, there was a bit more at stake than usual in today’s monthly jobs report. So, what’s the verdict? Mixed.

Job growth in April was 223,000—much closer to the 2014 year-round average than March’s numbers. And the unemployment rate ticked down (insignificantly) to 5.4 percent. Both of these numbers are good news.

But the weak March job growth was revised down even further, to 85,000. The prime-age employment-to-population ratio remains slightly off its February peak (77.2 percent down from 77.3).

Worse, some very nascent signs of pickup in wage growth seem to have melted away. The three-month change in average hourly earnings picked up to 2.7 percent in the March jobs report, but receded down to 2.3 percent in this month’s data. For the year, average hourly earnings rose 2.2 percent—the same desultory pace that has characterized essentially the entire recovery. For production workers (80 percent of the private sector workforce) wage growth was even weaker, increasing just 1.9 percent over the past year.

Where does all of this leave us?

For one, fears over a significant slowdown in the fundamental pace of economic activity are slightly mollified by this month’s report. But the fundamental pace of economic activity is hardly gangbusters. Take the average growth rate of 191,000 jobs a month over the past three months. This pace would get us back to pre-Great Recession labor market health by August 2017. If you want to down-weight the very weak March data, take the average job growth over the past six months—255,000. This would get us back to prerecession health by October 2016.

While this sounds promising (full recovery is only a year and a half away!), a return to pre-Great Recession labor market health is too unambitious a goal. After all, 2007 could hardly be described as a year with the kind of high-pressure labor market that would boost wages across the board. Inflation-adjusted hourly wages for the bottom half of the workforce fell in the five years between 2002 and 2007 (those interested can look at the hourly wage data here).

Given all of this, policymakers should realize two things. First, we’re still a ways off even from a full recovery from the Great Recession. It’s no time to cut policy support for this recovery short. Second, even a full recovery from the Great Recession is far too modest a goal. Instead, we need to target the kind of high-pressure labor market that we haven’t seen since the late 1990s. Anything less than this will leave the majority of American workers frozen out of sharing in economic growth through wage gains.