The economy is rolling along at a steady pace, but the narrative surrounding the economy has changed sharply. With the stock market hitting new records and anecdotal announcements from companies over bonuses, some pundits have declared this the new Golden Age for the economy. However, as we show below, there are still areas that need improvement for real growth to take place. Over the last year, few factors affected the fundamentals of the economy. On the monetary policy side, the third of three interest rate hikes went into effect in December. With Janet Yellen out of the Fed office, it remains to be seen what actions Jerome Powell will take to maintain the robust growth and low unemployment that the economy currently enjoys. On the fiscal policy side, the new tax cut package became a reality — it will be crucial to follow the effects of that change over the next few years. With this said, let’s take a look at the current “State of the Economy”:
1) 2017 In Review
We have now come through 88 consecutive months of private sector job growth. In other words, the upward trend in total number of private sector jobs has been ongoing since near the start of the 2010s. Over the past full year of President Trump’s term, we are averaging 183,000 jobs/month — barring an extended government shutdown (look out for the possibility of one on Feb. 8), it is likely that this trend will continue for the immediate future.
2) Are Americans getting a raise?
A key sign by which to measure economic strength is wage growth. This was stagnant much of the last decade, but we saw serious gains after 2013. However, despite record stock market prices, we have not seen that trickle down to workers and on the contrary, even saw some slowing in median wages in the last half of 2017. The Atlanta Federal Reserve tries to measure wage growth by looking at nominal wage growth of individuals 12 months apart. Though we see some slowing over the last few months, we could expect an uptick due to some of the recent announcements of bonuses or raises as well as increase in wage growth due to 18 states and 20 cities enacting higher minimum wages at the start of the year. Whether we see sustained wage growth is key, as there are still far too many workers who remain on the sidelines or working part-time who want full-time jobs.
3) Unemployment has been falling for everyone for awhile
The unemployment rate (U3) is holding steady at a low 4.1% as of January 2018. The Federal Reserve generally agrees that the long-run natural rate of unemployment, used a goal for full employment, is between 4.5 and 6%, implying that the current rate is very desirable. Looking at unemployment between different racial groups, the rate for each group has been falling steadily on an annual basis since 2015. It is important to note that unemployment rates for all groups fell steadily under President Obama — in particular, as of 2017, the rate for Black/African-American workers was at its lowest point since early 2000, a time of relative economic prosperity. However, with the end of the Obama presidency, this trend may be tapering somewhat — for Hispanic/Latino and Black/African-American workers, the unemployment rate fell more from 2015-2016 (0.8% and 1.2% respectively) than it did from 2016-2017 (0.7% and 0.9% respectively.) It remains to be seen whether the trend in falling unemployment rate will continue to moderate in the coming months for these two groups.
4) Breaking News: Older Workers retire
For a long time during the recovery, despite strong job growth, some of the focus was on falling labor force participation and the record number of Americans who are no longer working. Some media outlets used this as the headline for the job report, although those same outlets stop doing that starting in February 2017. The growth trend of those out of the labor force pre-dated the Recession and brought out by the large number of baby boomers who are retiring and leaving the labor force. This trend will continue into the near future despite any massive changes in the fundamentals of the economy.
5) The disappearing retail sector
Even with steady job growth, one area of concern that stands out is the ever-shrinking retail sector. Analysts attribute this to the rise of Amazon and other online retailers as consumers move to do their shopping online. Although these job losses are potentially offset by the increase in jobs in warehouses and fulfillment centers, as job compositions like retail trade change and shrink, these workers need support and avenues for new jobs. This is the time to increase support for job training, not shrink it.
Harin J. Contractor (@harincontractor) & Sonalee Rau are labor market economists & former Department of Labor staffers for both Secretaries Tom Perez and Hilda Solis.