Yes, the Employment Report Was Decent. But No, The Labor Market Isn’t Strong.
Yes, this morning’s jobs report had some welcome news. Payroll employment was up 280,000 jobs, slightly above the trend of the previous six months. But the recovery is far from complete: there is still a three million job shortfall in the economy today.
The recent trends in job growth predict a slow march back to full recovery. If we continued to add 280,000 jobs a month into the future, we wouldn’t fill the jobs gap until August 2016—more than a year away. Over the last six months, average job growth was 236,000. If we continued to add jobs at that pace, the gap wouldn’t close until the end of 2016. The three month average of 207,000 jobs (much slower because of the poor March report) moves full recovery even farther into the future—at that pace, we wouldn’t return to pre-recession labor market health until April 2017.
Furthermore, it’s important to remember that the 2007 labor market is still a low bar and that recovery is not just about jobs. Nominal wage growth continues to be far below target. Yes, 2.3 percent wage growth is an improvement, but it’s nowhere near strong enough to call for rate hikes. The Fed should not feel comfortable raising rates in September—in fact, they shouldn’t even begin to think about having a conversation about raising rates until 2016.