A Decidedly Weird Report

Today’s jobs report was, to say the least, strange. The first look was exciting—288,000 payroll jobs added! Now that is the kind of job growth that would get us back to a healthy labor market relatively soon. If we were to keep up this pace, we would get back to pre-recession labor market conditions by the end of 2016. Even I could live with that.

The second look was good, too—the household survey showed the unemployment rate plunged to 6.3 percent. But I should have stopped looking there, because the rest was pretty bad. It turns out the drop in unemployment was entirely due to people dropping out of the labor force. Employment in the household survey actually declined, and the labor force participation rate fell back down to its lowest point of the recovery. Our estimate of the number of “missing workers” (workers who are not working or actively seeking work but who would be if job opportunities were strong) increased to an all-time high of 6.2 million. If those missing workers were in the labor force looking for work, the unemployment rate would be 9.9 percent instead of 6.3 percent.

So this was one of those cases where the two surveys were telling completely different stories—the establishment survey was strong, the household survey was weak. As always, when the two surveys tell different stories, the rule of thumb is to place much more weight on the payroll survey, since it is larger and less erratic. But the weak household survey certainly dampens the fun of the payroll survey. If the economy really were entering a new stage of much stronger job growth, I’d expect both surveys to regularly be posting strong gains. That was far from the case in April.

A quick comment about wages: average hourly wages of all private sector workers held steady in March. The chart below shows year-over-year growth in hourly wages of all private sector workers. Wages are seeing growth rates far below what they were seeing before the recession started and have seen no growth whatsoever in three years. There is no certainly sign of excessive wage growth that would trigger inflation here. Instead, today’s jobs report shows there remains a tremendous amount of slack in the labor market, which shifts bargaining power away from workers (since they do not have decent outside options) and keeps wages low.