The American job market has unquestionably shifted into a higher gear, but there is still lack of progress on wages and in pulling people back into the labor force.
First the good news. The American job market has truly, really, finally, unquestionably shifted into a higher gear.
The 295,000 jobs the nation added in February exceeded expectations, drove the unemployment rate down two-tenths of a percentage point to 5.5 percent, and completed the best stretch for job creation in nearly 15 years. Over the past six months, the nation has added just shy of 300,000 jobs a month, the strongest number since the six months ended in March 2000.
This time a year ago, the economy was locked in a yearslong tepid recovery that involved adding 2 to 2.5 million jobs a year. That has now hit 3.3 million, and will soon hit 3.5 million if this pace of job growth keeps up.
But what is a little more curious is that while the evidence of a truly robust jobs recovery is obvious in this and other recent readings on the labor market, the evidence of the two other trends that economy-watchers are hoping to see is somewhere between murky and nonexistent.
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The absence of meaningful gains in American workers’ pay has been one of the lingering problems in the economy. With high rates of job growth and an unemployment rate that is down near normal, healthy levels, you would expect workers to have more leverage to demand raises. We’ve seen anecdotal evidence that is happening, including the major employers Wal-Mart and Aetna increasing their wages for lower-level workers.
But the latest jobs numbers offer no real evidence this is an economywide trend. Average hourly earnings rose only 0.1 percent in the month, below forecasts. Over the past year, that number has risen only 1.98 percent, actually down a bit from a few months ago. If there is good news, it is that the sharp 0.5 percent gain reported in January was not revised downward, but it’s not a great solace.
A steep drop in oil prices and a rise in the value of the dollar mean that inflation is low right now, so Americans are seeing inflation-adjusted wage gains despite the paltry wage increases. But in what has been an important open question — whether wages are set to rise in a material way in 2015 — the latest numbers point toward the negative.
Moreover, the jobless rate fell mostly for not-so-good reasons in February, with the labor force actually shrinking as fewer people were looking for a job. That data is volatile and the labor force expanded a lot in January, so one shouldn’t make much of it, but despite the reported strong job gains and fall in unemployment, the proportion of the population with a job was unchanged in February.
This all creates an interesting puzzle for the Federal Reserve as it tries to gauge when to raise interest rates.
On one hand, the results on job creation and the unemployment rate were about as good as one might hope for. The unemployment rate is now down to the upper boundary of what Fed officials believe that rate should be in the longer run (their economic projections peg that number as 5.2 to 5.5 percent).
On the other hand, the lack of progress on wages and lack of progress in pulling people into the labor force give plenty of ammunition to those officials who think that there remains plenty of slack in the labor market and that it wouldn’t be the worst thing in the world for the Fed to let the economy run a little hot for a while to try to change those trends.
It seems sensible that financial markets acted as if the news made it slightly more likely that the Federal Reserve would raise interest rates sooner rather than later — with, for example, long-term interest rates and the dollar both rising on the news. But the report itself makes the debate over what the best policy would be more cloudy rather than less.