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In the Nation's Interest

October’s Jobs Report Tells Us We Aren’t There Yet

by Joseph Minarik November 02, 2018

October’s employment situation report continues the trends of recent months. The numbers are attractive from just about any angle – just like last month. And the month before that. And the month before that.

The unemployment rate is unchanged at a very low 3.7 percent. The economy generated another 250,000 new jobs (in a round number that did not require rounding). Average hourly and weekly earnings showed moderate increases.

The scenery isn’t changing, which leaves us to wonder: Are we going anywhere? Are we getting anywhere?

Sooner or later, a period of consistency like this inevitably changes. Which way will this trend break? Are the seeds of tomorrow’s change already in today’s data, or is this truly a time of consistent progress? The questions behind this big picture remain essentially the same as before:

Can the job market keep living off of the 2017 tax cut, or will the economy develop tolerance for the stimulus, and begin to slow? To some economists, the essential importance of the new tax law is that it pumps roughly $2 trillion out to businesses and households, and they will spend the money in whatever way they choose. To others and to the Administration, the detail of the tax law will motivate substantially more domestic investment, increasing productivity and income growth. The jobs report, and last month’s GDP report, don’t really say. Of course, it is rare when one data release tells a whole story. But this question is crucial, because a higher investment plane can drive continuing job creation and growth, but a mere sugar high eventually leaves only a craving for more sugar.

Are the lost and forgotten workers from the financial crisis finally coming back to work? The labor force participation rate took a plunge during the “great recession.” It has stopped falling, but has not left a flat and narrow path for the last five years. The economy created a healthy number of jobs this month, but can we keep dipping into the same apparently dry well? That would seem to lead inevitably to…

With wage growth seemingly accelerating, is inflation just around the corner? The American worker by all accounts is hungry for a pay raise. We need faster growth of productivity to justify faster wage growth without inflation. The productivity statistics are short of inspiring, however.

All of these questions are intertwined. Will investment pick up, and if so, will it provide the needed productivity growth? Will the discouraged workers from the financial crisis rejoin the labor market and bid wages down – thereby forestalling inflation, but leaving the middle-class wage earner unsatisfied? Or will the intense competition driven by internet price comparison force producers and sellers to hold the line on both wages and prices?

By most accounts, the American middle class remains frustrated by the U.S. job market. The numbers are good, but the feelings are bad. Which way are we headed? And when will we get there? Perhaps we will learn more next month – but perhaps not. Next month may turn out to be just like last month. It has happened before…