The economy has made great strides since the recession, but some weakness lingers

With today’s Bureau of Labor Statistics (BLS) jobs report we can look at the entirety of 2018—putting the year as a whole in perspective and comparing 2018 with other years. Yesterday, I provided a fairly broad overview of the first 11 months of 2018 including context since the last business cycle peak before the Great Recession (2007) and the last time the U.S. economy was at full employment (2000).

As the recovery has strengthened we’ve seen improvements in all measures of employment, unemployment, and wage growth. These measures tell a consistent story—an economy on its way to full employment, but not there yet. Taking a data-driven approach to policymaking would mean continuing to push to reduce slack, keeping interest rates from rising further and letting the economy recover for Americans across races, ethnicities, ages, levels of educational attainment, and areas of the country.

Payroll employment growth in December was 312,000, bringing average job growth in 2018 up to 220,000. As shown in the figure below, job growth during this time period was a bit higher than in 2017. This can be attributed to the shift in federal policy from austerity to stimulus in the form of both tax cuts and a nearly $300 billion increase in government spending.

Nonfarm Growth

Average monthly total nonfarm employment growth, 2006–2018

Year Average monthly total nonfarm employment growth
2006 175
2007 96
2008 -297
2009 -422
2010 88
2011 174
2012 179
2013 192
2014 250
2015 226
2016 195
2017 182
2018 220
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Source: Data are from the Current Employment Statistics (CES) series of the Bureau of Labor Statistics and are subject to occasional revisions.

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In December, the unemployment rate rose to 3.9 percent, but notably for the “right” reasons as the labor force participation rate also rose 0.2 percentage points as workers returned to the labor market in search of job opportunities. Taking 2018 as a whole, the unemployment rate averaged 3.9 percent. It’s useful to compare today’s economy back to 2000, when the unemployment rate averaged 4.0 percent, and fell below 4.0 percent for five months. With a similar unemployment rate, 2000 saw no pronounced acceleration of inflation. Inflation has only recently even brushed the Fed’s target after years of being significantly below it, and a much longer spell of being on or above the target is needed. It’s safe to say that the unemployment rate can continue to fall without risking rapidly accelerating inflation.

And, there’s evidence to suggest that the current unemployment rate is overstating strength in the labor market. At times with similarly low unemployment, other indicators were stronger than today. For instance, in 2000, when the unemployment rate averaged 4.0 percent, the prime-age employment to population ratio (EPOP) averaged 81.5 percent. In December 2018 the prime-age EPOP held steady at 79.7 percent. Taken over the year, the average prime-age EPOP in 2018 was 79.4 percent, more than 2 full percentage points lower than in 2000. Remember the prime-age EPOP includes only those 25–54 years old, removing any potential baby boomer retirement effect. The figure below shows the trends in prime-age EPOP since 1989. While there’s been clear improvement since the depths of the Great Recession and its aftermath, the current level remains below the immediate pre-recession peak and even further below the 2000 peak.

Dec-2018

Employment-to-population ratio of workers ages 25-54, 1989–2018

date Employment to population ratio
Jan-1989 80%
Feb-1989 79.9
Mar-1989 79.9
Apr-1989 79.8
May-1989 79.8
Jun-1989 79.8
Jul-1989 79.8
Aug-1989 79.9
Sep-1989 80
Oct-1989 79.9
Nov-1989 80.2
Dec-1989 80.1
Jan-1990 80.2
Feb-1990 80.2
Mar-1990 80.1
Apr-1990 79.9
May-1990 79.9
Jun-1990 79.8
Jul-1990 79.6
Aug-1990 79.5
Sep-1990 79.4
Oct-1990 79.4
Nov-1990 79.2
Dec-1990 79
Jan-1991 78.9
Feb-1991 78.9
Mar-1991 78.7
Apr-1991 79
May-1991 78.6
Jun-1991 78.7
Jul-1991 78.6
Aug-1991 78.5
Sep-1991 78.6
Oct-1991 78.5
Nov-1991 78.4
Dec-1991 78.3
Jan-1992 78.4
Feb-1992 78.2
Mar-1992 78.2
Apr-1992 78.4
May-1992 78.4
Jun-1992 78.5
Jul-1992 78.4
Aug-1992 78.4
Sep-1992 78.3
Oct-1992 78.2
Nov-1992 78.2
Dec-1992 78.2
Jan-1993 78.2
Feb-1993 78.1
Mar-1993 78.2
Apr-1993 78.2
May-1993 78.5
Jun-1993 78.6
Jul-1993 78.6
Aug-1993 78.8
Sep-1993 78.6
Oct-1993 78.7
Nov-1993 79
Dec-1993 79
Jan-1994 78.9
Feb-1994 78.9
Mar-1994 78.9
Apr-1994 79
May-1994 79.2
Jun-1994 78.8
Jul-1994 79.1
Aug-1994 79.2
Sep-1994 79.6
Oct-1994 79.6
Nov-1994 79.8
Dec-1994 79.8
Jan-1995 79.7
Feb-1995 80
Mar-1995 79.9
Apr-1995 79.8
May-1995 79.7
Jun-1995 79.5
Jul-1995 79.7
Aug-1995 79.6
Sep-1995 79.8
Oct-1995 79.8
Nov-1995 79.7
Dec-1995 79.7
Jan-1996 79.8
Feb-1996 79.9
Mar-1996 79.9
Apr-1996 79.9
May-1996 80
Jun-1996 80.1
Jul-1996 80.4
Aug-1996 80.5
Sep-1996 80.4
Oct-1996 80.6
Nov-1996 80.5
Dec-1996 80.5
Jan-1997 80.5
Feb-1997 80.4
Mar-1997 80.6
Apr-1997 80.7
May-1997 80.6
Jun-1997 80.9
Jul-1997 81.1
Aug-1997 81.3
Sep-1997 81.1
Oct-1997 81.1
Nov-1997 81
Dec-1997 81
Jan-1998 81
Feb-1998 81
Mar-1998 81
Apr-1998 81.1
May-1998 81
Jun-1998 81
Jul-1998 81.1
Aug-1998 81.2
Sep-1998 81.3
Oct-1998 81.1
Nov-1998 81.2
Dec-1998 81.3
Jan-1999 81.8
Feb-1999 81.5
Mar-1999 81.3
Apr-1999 81.3
May-1999 81.4
Jun-1999 81.4
Jul-1999 81.2
Aug-1999 81.3
Sep-1999 81.3
Oct-1999 81.5
Nov-1999 81.6
Dec-1999 81.5
Jan-2000 81.8
Feb-2000 81.8
Mar-2000 81.7
Apr-2000 81.9 
May-2000 81.5
Jun-2000 81.5
Jul-2000 81.3
Aug-2000 81.1
Sep-2000 81.1
Oct-2000 81.1
Nov-2000 81.3
Dec-2000 81.4
Jan-2001 81.4
Feb-2001 81.3
Mar-2001 81.3
Apr-2001 80.9
May-2001 80.8
Jun-2001 80.6
Jul-2001 80.5
Aug-2001 80.2
Sep-2001 80.2
Oct-2001 79.9
Nov-2001 79.7
Dec-2001 79.8
Jan-2002 79.6
Feb-2002 79.8
Mar-2002 79.6
Apr-2002 79.5
May-2002 79.4
Jun-2002 79.2
Jul-2002 79.1
Aug-2002 79.3
Sep-2002 79.4
Oct-2002 79.2
Nov-2002 78.8
Dec-2002 79
Jan-2003 78.9
Feb-2003 78.9
Mar-2003 79
Apr-2003 79.1
May-2003 78.9
Jun-2003 78.9
Jul-2003 78.8
Aug-2003 78.7
Sep-2003 78.6 
Oct-2003 78.6
Nov-2003 78.7
Dec-2003 78.8
Jan-2004 78.9
Feb-2004 78.8
Mar-2004 78.7
Apr-2004 78.9
May-2004 79
Jun-2004 79.1
Jul-2004 79.2
Aug-2004 79
Sep-2004 79
Oct-2004 79
Nov-2004 79.1
Dec-2004 78.9
Jan-2005 79.2
Feb-2005 79.2
Mar-2005 79.2
Apr-2005 79.4
May-2005 79.5
Jun-2005 79.2
Jul-2005 79.4
Aug-2005 79.6
Sep-2005 79.4
Oct-2005 79.3
Nov-2005 79.2
Dec-2005 79.3
Jan-2006 79.6
Feb-2006 79.7
Mar-2006 79.8
Apr-2006 79.6
May-2006 79.7
Jun-2006 79.8
Jul-2006 79.8
Aug-2006 79.8
Sep-2006 79.9
Oct-2006 80.1
Nov-2006 80
Dec-2006 80.1
Jan-2007 80.3 
Feb-2007 80.1
Mar-2007 80.2
Apr-2007 80
May-2007 80
Jun-2007 79.9
Jul-2007 79.8
Aug-2007 79.8
Sep-2007 79.7
Oct-2007 79.6
Nov-2007 79.7
Dec-2007 79.7
Jan-2008 80
Feb-2008 79.9
Mar-2008 79.8
Apr-2008 79.6
May-2008 79.5
Jun-2008 79.4
Jul-2008 79.2
Aug-2008 78.8
Sep-2008 78.8
Oct-2008 78.4
Nov-2008 78.1
Dec-2008 77.6
Jan-2009 77
Feb-2009 76.7
Mar-2009 76.2
Apr-2009 76.2
May-2009 75.9
Jun-2009 75.9
Jul-2009 75.8
Aug-2009 75.6
Sep-2009 75.1
Oct-2009 75
Nov-2009 75.2
Dec-2009 74.8 
Jan-2010 75.1
Feb-2010 75.1
Mar-2010 75.1
Apr-2010 75.4
May-2010 75.1
Jun-2010 75.2
Jul-2010 75.1
Aug-2010 75
Sep-2010 75.1
Oct-2010 75
Nov-2010 74.8 
Dec-2010 75
Jan-2011 75.2
Feb-2011 75.1
Mar-2011 75.3
Apr-2011 75.1
May-2011 75.2
Jun-2011 75
Jul-2011 75
Aug-2011 75.1
Sep-2011 74.9
Oct-2011 74.9
Nov-2011 75.3
Dec-2011 75.4
Jan-2012 75.5
Feb-2012 75.5
Mar-2012 75.7
Apr-2012 75.7
May-2012 75.7
Jun-2012 75.6
Jul-2012 75.6
Aug-2012 75.7
Sep-2012 76
Oct-2012 76.1
Nov-2012 75.8
Dec-2012 76
Jan-2013 75.6
Feb-2013 75.8
Mar-2013 75.8
Apr-2013 75.8
May-2013 76
Jun-2013 75.9
Jul-2013 76
Aug-2013 76
Sep-2013 76
Oct-2013 75.6
Nov-2013 76.1
Dec-2013 76.1
Jan-2014 76.4
Feb-2014 76.4
Mar-2014 76.5
Apr-2014 76.5
May-2014 76.4
Jun-2014 76.9
Jul-2014 76.7
Aug-2014 76.9
Sep-2014 76.8
Oct-2014 76.9
Nov-2014 76.9
Dec-2014 77.1
Jan-2015 77.1
Feb-2015 77.2
Mar-2015 77.1
Apr-2015 77.2
May-2015 77.2
Jun-2015 77.4
Jul-2015 77.1
Aug-2015 77.3
Sep-2015 77.2
Oct-2015 77.3
Nov-2015 77.4
Dec-2015 77.4
Jan-2016 77.7
Feb-2016 77.8
Mar-2016 77.9
Apr-2016 77.7
May-2016 77.8
Jun-2016 77.9
Jul-2016 77.9
Aug-2016 77.9
Sep-2016 78
Oct-2016 78.2
Nov-2016 78.1
Dec-2016 78.1
Jan-2017 78.2
Feb-2017 78.3
Mar-2017 78.5
Apr-2017 78.6
May-2017 78.4
Jun-2017 78.6
Jul-2017 78.6
Aug-2017 78.5
Sep-2017 78.9
Oct-2017 78.9
Nov-2017 79
Dec-2017 79.1
Jan-2018 79
Feb-2018 79.3
Mar-2018 79.2
Apr-2018 79.2
May-2018 79.2
Jun-2018 79.3
Jul-2018 79.5
Aug-2018 79.4
Sep-2018 79.3
Oct-2018 79.7
Nov-2018 79.7
Dec-2018 79.7 
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Source: EPI analysis of Bureau of Labor Statistics' Current Population Survey public data

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What’s clear is that despite the low unemployment rate, there are still workers sitting on the sidelines because of residual weakness in today’s economy. But, month after month, those sidelined workers are returning to the labor force. In fact, more than 7 in 10 newly employed workers are coming from out of the labor force. These workers weren’t counted among the unemployed in the previous month but are now employed. From a historical perspective these flows into employment from out of the labor force are at record highs.

It’s also important to remember that an average annual unemployment rate of 3.9 percent masks important differences by race and ethnicity. While steadily improving for all groups, the average unemployment rate for white workers was 3.5 percent in 2018, compared to significantly higher levels of unemployment for black workers (6.5 percent) and Hispanic workers (4.7 percent). (Monthly unemployment rates by race and ethnicity can be found here.) It can’t be stressed enough the importance of achieving genuine full employment to these workers.

The most prominent lingering weakness in the labor market of 2018 is below target wage growth. In December, year-over-year private-sector nominal wages grew 3.2 percent. Average wage growth between the full years 2017 and 2018 hit 2.8 percent, a solid increase over the 2.5 percent average growth exhibited between 2016 and 2017. While this is definitely an improvement, we should see wage growth above 3.5 percent and for a consistent period before the labor market can be considered at genuine full employment.

Nominal Wage Tracker Dec-2018

Nominal wage growth has been far below target in the recovery: Year-over-year change in private-sector nominal average hourly earnings, 2007–2018

Date All nonfarm employees Production/nonsupervisory workers
Mar-2007 3.44% 4.11%
Apr-2007 3.13% 3.85%
May-2007 3.53% 4.14%
Jun-2007 3.61% 4.19%
Jul-2007 3.25% 4.05%
Aug-2007 3.35% 3.98%
Sep-2007 3.09% 4.15%
Oct-2007 3.03% 3.78%
Nov-2007 3.07% 3.83%
Dec-2007 2.92% 3.75%
Jan-2008 2.91% 3.80%
Feb-2008 2.85% 3.79%
Mar-2008 3.04% 3.83%
Apr-2008 2.89% 3.70%
May-2008 3.07% 3.69%
Jun-2008 2.67% 3.56%
Jul-2008 3.05% 3.67%
Aug-2008 3.33% 3.89%
Sep-2008 3.28% 3.64%
Oct-2008 3.32% 3.81%
Nov-2008 3.50% 3.91%
Dec-2008 3.59% 3.90%
Jan-2009 3.58% 3.72%
Feb-2009 3.43% 3.65%
Mar-2009 3.28% 3.47%
Apr-2009 3.37% 3.35%
May-2009 2.93% 3.06%
Jun-2009 2.88% 2.88%
Jul-2009 2.69% 2.76%
Aug-2009 2.44% 2.64%
Sep-2009 2.44% 2.75%
Oct-2009 2.53% 2.68%
Nov-2009 2.15% 2.67%
Dec-2009 1.96% 2.50%
Jan-2010 2.09% 2.66%
Feb-2010 2.09% 2.55%
Mar-2010 1.81% 2.27%
Apr-2010 1.81% 2.38%
May-2010 1.90% 2.59%
Jun-2010 1.76% 2.53%
Jul-2010 1.85% 2.42%
Aug-2010 1.75% 2.36%
Sep-2010 1.84% 2.19%
Oct-2010 1.93% 2.45%
Nov-2010 1.79% 2.13%
Dec-2010 1.79% 2.02%
Jan-2011 1.96% 2.28%
Feb-2011 1.83% 2.11%
Mar-2011 1.83% 2.06%
Apr-2011 1.87% 2.11%
May-2011 2.04% 2.10%
Jun-2011 2.13% 2.05%
Jul-2011 2.30% 2.26%
Aug-2011 1.95% 1.99%
Sep-2011 1.94% 1.99%
Oct-2011 2.07% 1.88%
Nov-2011 1.98% 1.82%
Dec-2011 2.02% 1.77%
Jan-2012 1.75% 1.35%
Feb-2012 1.79% 1.45%
Mar-2012 2.14% 1.76%
Apr-2012 2.09% 1.70%
May-2012 1.74% 1.39%
Jun-2012 1.96% 1.54%
Jul-2012 1.69% 1.39%
Aug-2012 1.86% 1.33%
Sep-2012 1.99% 1.54%
Oct-2012 1.51% 1.18%
Nov-2012 1.94% 1.48%
Dec-2012 2.11% 1.69%
Jan-2013 2.11% 1.89%
Feb-2013 2.19% 1.99%
Mar-2013 1.93% 1.88%
Apr-2013 2.01% 1.78%
May-2013 2.14% 1.93%
Jun-2013 2.13% 1.98%
Jul-2013 2.09% 2.03%
Aug-2013 2.26% 2.23%
Sep-2013 2.04% 2.12%
Oct-2013 2.25% 2.37%
Nov-2013 2.20% 2.32%
Dec-2013 1.90% 2.26%
Jan-2014 1.98% 2.21%
Feb-2014 2.23% 2.55%
Mar-2014 2.06% 2.30%
Apr-2014 1.97% 2.40%
May-2014 2.13% 2.44%
Jun-2014 2.05% 2.34%
Jul-2014 2.08% 2.33%
Aug-2014 2.21% 2.43%
Sep-2014 2.16% 2.33%
Oct-2014 2.03% 2.22%
Nov-2014 2.03% 2.26%
Dec-2014 1.99% 1.92%
Jan-2015 2.19% 2.06%
Feb-2015 1.93% 1.66%
Mar-2015 2.22% 1.95%
Apr-2015 2.22% 1.95%
May-2015 2.34% 2.14%
Jun-2015 2.17% 2.09%
Jul-2015 2.12% 1.99%
Aug-2015 2.24% 2.08%
Sep-2015 2.24% 2.03%
Oct-2015 2.52% 2.37%
Nov-2015 2.43% 2.12%
Dec-2015 2.56% 2.51%
Jan-2016 2.55% 2.40%
Feb-2016 2.38% 2.40%
Mar-2016 2.50% 2.54%
Apr-2016 2.61% 2.58%
May-2016 2.44% 2.33%
Jun-2016 2.56% 2.43%
Jul-2016 2.76% 2.62%
Aug-2016 2.47% 2.42%
Sep-2016 2.63% 2.56%
Oct-2016 2.70% 2.36%
Nov-2016 2.57% 2.40%
Dec-2016 2.65% 2.49%
Jan-2017 2.40% 2.35%
Feb-2017 2.72% 2.39%
Mar-2017 2.55% 2.24%
Apr-2017 2.51% 2.24%
May-2017 2.46% 2.33%
Jun-2017 2.50% 2.32%
Jul-2017 2.49% 2.22%
Aug-2017 2.60% 2.31%
Sep-2017 2.83% 2.59%
Oct-2017 2.28% 2.21%
Nov-2017 2.47% 2.35%
Dec-2017 2.66% 2.43%
Jan-2018 2.77% 2.43%
Feb-2018 2.57% 2.47%
Mar-2018 2.64% 2.60%
Apr-2018 2.64% 2.64%
May-2018 2.79% 2.73%
Jun-2018 2.78% 2.77%
Jul-2018 2.77% 2.77%
Aug-2018 2.96% 2.94%
Sep-2018 2.79% 2.79%
Oct-2018 3.17% 3.16%
Nov-2018 3.13% 3.28%
Dec-2018 3.15% 3.32%

 

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*Nominal wage growth consistent with the Federal Reserve Board's 2 percent inflation target, 1.5 percent productivity growth, and a stable labor share of income.

Source: EPI analysis of Bureau of Labor Statistics Current Employment Statistics public data series

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As we look to 2019, the labor market should continue on its path to full employment as long as nothing throws it off the tracks. Unfortunately, if the Federal Reserve continues raising rates, the economy may never get there.