What to Watch on Jobs Day: The economy is still moving towards full employment. The Fed should keep their foot off the brake so it can get there.
Friday is the last Jobs Report before the Federal Reserve’s final meeting of the year, when they decide whether to hold the course or raise rates. Rumor has it that the Federal Reserve might act in anticipation of a sizeable (if inefficient) short-run fiscal boost that could come if the incoming administration passes a planned tax cut mostly for the wealthy. But, there’s no reason to pre-emptively slow the economy down, given that we’re starting from less-than-full employment. Besides, there will be time to slow it down if and when the tax cut happens. Right now the priority should be keeping the economy on track and moving it forward.
The economy has continued to approach full employment, and signs of tightening are beginning to shine through, but we’re not there yet. The overall unemployment rate has come down, but remains elevated for workers of color and fails to reflect the sheer numbers of workers on the sidelines waiting to get in the game. The prime-age employment-to-population ratio has only recently surpassed the lowest point of the last two business cycles, not yet reaching the lowest point of the last one. That said, the economy continues to proceed in the right direction. Nominal wage growth has finally picked up a bit in the last year as workers see a slight increase in their bargaining power reflected in their paychecks.
Staying the course is the best action. Labor market tightness, leading to stronger wage growth as employers need to increase wages to attract and retain the best workers, should be the goal of policymakers, not a perceived danger to be stomped out.