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Job Gains Surge in April

RFP
Nonfarm payrolls increased by a whopping 263,000 in April, buoyed in part by a jump of 27,000 government jobs. Temporary hires for the 2020 census have begun; hiring for the census is something to watch as gains will accelerate dramatically in the months to come, then end abruptly in 2020. Local education hires also picked up. The hope is that the rise in local hires outside of education included workers to make repairs and upgrades to roads pummelled by the polar vortex. There was also a second bomb cyclone in April, which likely buoyed hires at the local level for cleanup. Revisions to the last two months were to the upside.

Gains in the private sector were strong in professional and business services, which points to firms leveraging their investment in new technologies. They are bringing in consultants to apply automation and AI in new ways. This could be a source of productivity growth going forward and underscores how investment in technology boosts and distorts the demand for workers.

The increases in professional services included both administrative support and computer programmers. The support side is something that has shifted fairly dramatically in recent years. This is an area where automation and voicemail once eliminated jobs. Support personnel have become much more sophisticated, providing logistics support to a professional services sector that is more complex in dealing with the demands of a tech-savvy economy. My administrative assistant is a case in point. She learned to code to provide support for my entire team.

Construction employment picked up a bit, although gains were heavily skewed toward special commercial contractors. Half of those gains were in heavy and civil engineering, which include infrastructure repairs. We saw little to no gains in residential construction; lack of supply remains a constraint on growth.

Health care and social services employment remained strong in response to the aging of the population. This is an area where technology can play a critical role in complementing the role of human touch. There has also been an increase in demand for family services and support in communities experiencing a high level of opioid addiction and overdoses.

Jobs in financial services increased but the gains were almost entirely driven by real estate and rental leasing. That raises concerns of a real estate bubble on the commercial side. The demand for affordable apartments remains strong as search activity is intensifying.

Hiring in leisure and hospitality slowed after surging the previous month. Most were hired ahead of the later-than-usual Easter in April.

Jobs in the manufacturing sector were nearly flat. The vehicle sector continued to shed jobs. Tariffs, weakness in exports and an overhang of inventories are all hurdles for heavy manufacturers. Boeing curbed production of its 737 Max during the month but told suppliers to keep producing, reflecting some hope of ramping up again as soon as June. That mitigated losses there.

Retail hiring continued to fall as restructuring in the retail sector gained momentum. Over 600 store closings were announced in the first quarter, more than in all of 2018. That reflects the ongoing shift from traditional retailers in malls to discounters and online retailers. In fact, retail wages now represent one of the fastest growing categories of wage growth despite the job losses. Retail behemoths Walmart, Amazon and Costco have all raised wages for entry-level jobs this year, making it even more difficult for traditional retailers to compete.

Average hourly earnings increased by 6 cents to $27.77 per hour. That holds year-over-year gains to the 3.2% level we saw in March but remains below the 3.4% cyclical high hit in February. Much of the wage growth we have seen in recent years has been due to a shift in minimum wages at the state and local levels. These upward shifts started with the midterm elections in 2014. They remained popular in the 2016 and 2018 elections and have pushed up wages in low-wage jobs quite substantially. What has been surprising is the lack of “trickle up” we have seen from those gains. Managers of low-wage workers typically get paid more as their employees’ wages rise. Many of the same large retailers that have raised the wages of entry-level workers have cut compensation for managers, either directly or by cutting the number of managers they employ. This represents a further squeeze on the middle class.

Separately, the household survey showed that the unemployment rate dropped to 3.6%, a five-decade low. The fly in the ointment is that a good portion of that decline was due to a loss in participation in the labor force. We have seen a drop in participation for two months in a row. It has now fallen to the level of participation we saw a year ago. The biggest losses in labor force participation occurred among those with a high school degree or less, those with some college and teens. That is the opposite of what we would expect, given the longevity of this economic expansion and the low level of unemployment.

One of the few tools that the Federal Reserve has is to extend the length of this marathon of an expansion in an effort to pull more people off the sidelines and into the race. That was occurring, but seems to have abated. This is another trend that we need to watch closely when assessing the overall health of the economy. We still have one of the lowest participation rates among our peers in the world, with the largest losses among prime-age (25-54 year old) men. We have lost some half a million prime-age men since the turn of the century, something that Fed Chairman Jay Powell has underscored as a concern for the broader economy. The reasons span a loss of male-dominated jobs, skills erosion, lack of training and investment, mass incarceration and, sadly, a sharp increase in opioid addiction.

Bottom Line
Markets were wrong about the risks of a recession at the turn of the year. The economy still has significant momentum. Chairman Powell should feel vindicated for his decision to wait and see instead of cutting rates preemptively.




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