Although payroll employment came in much lower than expected and lower than the strong finish to last year, today’s jobs report is a sign that the economy continues to recover. Job creation and wage growth need to be far stronger, and they need to remain strong for a longer period of time, before the economy is close to full employment. Payroll employment growth was only 151,000 in January—unimpressive after the stronger finish to 2015 (even after downward revisions this month). Year-over-year nominal wage growth was 2.5 percent, more on track with the end of 2015 than payroll employment. Still, wage growth of 2.5 percent is far from any reasonable target given the Federal Reserve’s target inflation and trend productivity.
To keep moving us towards the goal of full employment—an economy where there is high demand for labor, and workers have more bargaining power to negotiate higher wages and get the hours they want—we need to keep our foot off the brakes and consider tapping on the gas. If the Federal Reserve hits the brakes by raising interest rates prematurely, the economy may never fully recovery. And, if we want to speed along the recovery, we should consider reversing the path of austerity, which has been a damper on economic growth. While state and local spending has ticked up, public sector employment remains below pre-recession levels and there’s a lot of room to recover more on the public spending front, which would move us further along the road to full employment.