Tuesday, July 10, 2018 1:00 am
Joblessness going up; why that's good news
Washington Post editorial
You know these are interesting times in the U.S. economy when it's a positive sign that the unemployment rate just went up.
On Friday, the Labor Department reported that the jobless rate ticked up from 3.8 percent in May to 4.0 percent in June, but that's good news because it reflected an increase of job seekers of about 600,000, drawn from the pool of previously discouraged workers. Even though employers created a healthy 213,000 new non-farm jobs, that wasn't enough to keep up with the increase in labor force participation.
When previously idle people return to, and stay in, the labor force, they can acquire new skills and enhance their capacity to take on employment in the future. Wages, too, are bound to rise, and they did so at an annual rate of 2.7 percent last month.
In short, today's tight labor market creates a virtuous circle, and it's worth reflecting on how we got here – and what could still go wrong.
President Donald Trump and the Republican Congress are eager to claim credit for the tax cut that became law six months ago; and there is some evidence that it has boosted investment and confidence. The main source of today's robust economy, however, is the sound policy and steady hand of the Federal Reserve, led for the past four years by President Barack Obama's choice, Chair Janet Yellen, who has been replaced by a Trump nominee, Jerome Powell, who pledged to continue her broad approach.
The Fed, starting with Ben Bernanke's tenure, steered the U.S. economy from the near-collapse of 2008 to today's robust, sustainable expansion, which is in what can only be described as a “sweet spot”: steady job growth and inflation near the Fed's target of 2 percent.
What remains to be achieved, however, is a level of wage growth commensurate with the other indicators of labor-market tightness. Even at 2.7 percent, the current annual rate of growth in wages is moderate at best – not much higher than inflation. It reflects the fact that many new jobs are in lower-wage sectors of the economy; also, productivity growth has not yet accelerated. Future economic and wage growth will depend on pulling in yet more workers off the sidelines – even at 82 percent, the current level of prime-age labor force participation is still below pre-recession levels – and enhancing their output per hour. The Fed lacks a certain template for achieving either, but the continued hints of softness in the labor market argue for patience in raising interest rates further this year.
The Fed, at least, is known for making its policy determinations on the basis of data. If only we could say the same for the executive and legislative branches, because it's from those segments of government that risks to the economy currently emanate, potentially to the point of canceling out whatever good the tax cut does.
As the Fed's Open Market Committee observed in its latest published minutes, the business community is fretting about “the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity.” American business would be doing just fine if not for the businessman in the White House.