OPIOID SERIES:

Jobs data show US economy cruising at impressive clip

Jobs data show US economy cruising at impressive clip
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The U.S. economy has been gaining momentum this year. After being stuck in a 2-percent rut since the beginning of this decade, real GDP growth has recorded back-to-back quarters above 3 percent and is on pace to meet or exceed that mark again in the current period.

Thus, it should not be especially surprising that the labor market remains solid, as the demand for workers continues to be robust. In November, firms added 228,000 to their payrolls, a result that is noticeably better than economists had expected.

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What is most striking to me about the employment figures in November is that the economy achieved a lofty pace of net hiring, roughly twice what is necessary over time to keep pace with the natural growth in the working-age population, without the benefit of a bunch of fluky special factors.

 

These payroll data remind me of the world-class marathoner who can clip off five- and six-minute miles for hours without breathing hard, as opposed to someone like me who can’t run that fast for more than a few hundred meters without collapsing in a heap.

This economy is cruising right now at an impressive clip. Job gains were broad-based last month, as the construction, manufacturing, retail and service sectors all posted robust increases. Still, none of the rises across various sectors seems outlandish or even unsustainable.

Of course, it is doubtful that employment will increase by well over 200,000 each and every month (the average so far this year is around 175,000), but the staying power of the labor market this year has been impressive.

With the unemployment rate falling and firms finding it increasingly difficult to fill openings due to a scarcity of well-qualified candidates, there was every reason to expect coming into the year that the pace of hiring would fade.

Instead, an acceleration in growth has boosted businesses’ need for additional workers, and more prime-age workers are being drawn off the sidelines and back into the labor force, counteracting the retirement of massive cohorts of Baby Boomers.

In this environment, there is one shoe that stubbornly refuses to drop. One would think that a big part of the explanation for the influx of new workers would be gradually rising wage offers. Anecdotal and survey evidence strongly supports that notion, but the statistical data have not yet shown a definitive pickup in hourly wages.

Average hourly earnings in November increased by less than expected, maintaining the theme that the official pay data have yet to break out. In my view, higher wages are inevitable, but the year-over-year advance in average hourly earnings has been stuck around 2.5 percent for almost two years.

Going back to the running analogy, the question is whether the economy is going to run out of steam soon due to a lack of easily available workers. By providing added financial incentives for large and small companies to invest, the tax bill that Congress is negotiating could give this expansion a second wind.

Labor markets are very tight, but business investment in plant and equipment and in turn productivity gains have been unusually low in this cycle. More investment would allow businesses to do more in terms of output with the same amount of labor, which will be critical to extending this expansion given that the jobless rate is already approaching the lowest levels seen since the 1960s.

Some see tax cuts as offering a short-term sugar-high at a time when the economy does not need it, but incentives to boost business investment can provide the sort of longer-term sustenance that can help to propel the expansion forward for the foreseeable future.

Stephen Stanley is the chief economist for Amherst Pierpont Securities, a broker-dealer providing institutional and middle-market clients with access to fixed-income products.