The jobs market continues to roar.
Job creation surged in May, as the economy added 223,000 new jobs, with upward revisions to the previous two months tacking on an additional 15,000. The combination easily exceeded expectations for a gain of about 190,000.
On the back of continued strong creation and low layoffs, the unemployment rate fell to 3.8% - its lowest point in over 18 years. Near the end of the protracted expansion that characterized much of the 1990s, joblessness bottomed at that same level in April 2000.
Assuming that job creation continues and the jobless rate dips further, how low is unemployment then from a historical perspective? Very low…..half-century low. The unemployment rate hasn’t been below 3.8% since December 1969. And neither the economy broadly nor job creation specifically show signs of letting up, so there appears to be more room for joblessness to continue to decline from here.
One gauge of the labor market that has been weak through much of the expansion is wage growth. Even as labor market conditions on the whole were running hot, earnings growth was cold. There are signs that a thaw is underway. Average weekly earnings rose by 0.3% in May, but grew by 3.0% over the past year.
In its recently released Beige Book, the Federal Reserve highlighted tight labor market conditions, and acknowledged labor shortages in a growing number of sectors, while also noting a pickup in manufacturing activity. That dynamic was apparent in payroll growth again in May. Despite the recent slowdown in auto sales, job creation in the manufacturing sector was solidly positive, and has averaged about 21,000 per month in recent months.
With the unemployment rate slipping further below 4.0%, initial jobless claims near multi-decade lows, and increasing hiring challenges for employers, multiple gauges of wage growth now appear to be picking up as well. A combination of increasingly tight labor conditions and rising inflation puts the Fed in a position to build on their prior interest rate hikes as policymakers attempt to execute a steady, controlled return to normal policy.
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