The American job market wasn’t supposed to be this good, this long.
The current expansion is set to become the longest period of growth in US history later this summer. But the strong labor market shows no sign of letting up.
Unemployment fell to the lowest level in nearly 50 years in April, the Labor Department reported Friday. Employers added 263,000 jobs. That is well above the average growth of about 200,000 jobs a month throughout this record string of 103 consecutive months of job gains.
“Spectacular is the only way to describe this number. It is hard to believe that this 10-year old recovery keeps pumping out home runs,” said Sung Won Sohn, economics professor at Loyola Marymount University.
Despite a few dings in an otherwise powerhouse jobs report, true strength exists in the labor market.
“The employment numbers any one month might give you a misleading signal. But we’ve had this strength for a number of years. It’s real,” said David Berson, chief economist for Nationwide Insurance.
This is not normal.
The theory of business cycles dictates that the longer an expansion runs and the lower unemployment gets, the more likely the engine of job creation is to run out of steam.
When practically everyone has a job, employers have trouble finding workers they need to keep growing their businesses. Employers have to raise wages to attract new hires or keep the workers they want. People get paid more, which means demand for goods increases, which can feed inflation. The increased wage costs can also push prices up. Higher inflation and lower unemployment means the Federal Reserve is more likely to raise rates, which itself can put the brakes on the economy.
Some of those things have already happened. Wages have been increasing — up 3.2% compared to a year ago, well above the latest 1.9% rate of inflation. More job openings exist than people who want to fill them, according to the Labor Department. And the Fed did raise rates last year, though not enough to slam the brakes on economic growth.
And that’s because inflation has not become a problem. Oversees goods and productivity gains have kept prices in check.
“Because inflation has not picked up, it may allow the expansion to continue for quite a while longer,” Berson said. “That’s the big difference.”
The tax cuts passed at the end of 2017 also probably continue to boost economic activity and hiring along with it, said Mark Hamrick, Bankrate.com senior economic analyst. Congress doesn’t normally add stimulus to the economy during an expansion — that more typically happens when the economy is in recession.
“To some degree, we’re still benefiting from that stimulus,” Hamrick said.
And Hamrick said part of the reason growth has lasted so long is the fact that the growth has generally been slow and measured. That reduced the chance of the labor market overheating.
“We’ve been through periods where an economy overheated. That doesn’t end well,” said Hamrick. “It doesn’t appear the economy is overheating now.”