Wages have been growing faster the tighter the labor market gets.
The jobs report showing America added 196,000 jobs in March isn’t great news or awful news — it just tells us that what we thought we knew is basically accurate.
The Labor Department says the unemployment rate was 3.8%, and that average hourly pay rose 3.2% in the last 12 months — both solid readings portraying an economy that is near, but not at, full employment. That shouldn’t shock anyone — because it’s so consistent with everything else we learned about the economy this week, and have been learning over the last couple of months.
That picture points to what most experts have been saying all along — the economy will slow down this year, but likely not past the low 2% range where it has been banging along for years now.
Related story: Hiring speeds up as U.S. economy adds 196,000 jobs in March
That may bother enthusiasts of our current president, who has promised his economic plan will produce 3%, 4% or 6% growth, depending on how revved up he’s feeling at the moment. But it’s actually not terrible in the real world, and it’s pretty good for stocks SPX, +0.38% .
“Latest jobs numbers show a damn healthy economy,” University of Michigan economist Justin Wolfers said on Twitter. “Over the past three months, the economy has produced on average +180k jobs per month. Which is smoking.”
The data all week have actually been pretty good, as this handy summary from MarketWatch’s data team shows. Tesla’s TSLA, +0.83% delivery woes aside, auto sales for March were stronger than expected. Purchasing-manager sentiment indexes from the Institute of Supply Management showed both manufacturing and services expanding, but more slowly than before. Construction spending beat forecasts.
Best of all, the report on personal income on March 29 showed that core inflation is slowing down — it’s at 1.8% for the last 12 months, which is below the Federal Reserve’s well-known 2% target. That means the Fed is under really no pressure to raise interest rates — and that’s good for both stocks and the real economy that the stock market ultimately reflects.
“Real disposable income is up at a 3.8% rate,” High Frequency Economics’ Jim O’Sullivan wrote.
The presidential campaign is full of arguments about how working-class and middle-class Americans have been ill served by the economy since the 1970s, and there is a lot of truth to it.
But the real truth is that incomes, in particular, have done a stop-start pattern over those decades — growing when the economy is in the wide part of expansions, stagnating when it’s not, and declining sharply after the 2008 financial crisis, when the median household lost nearly 10% of its purchasing power — an outcome just as devastating in the short term, but far less appreciated, than the sharp inflation of the late 1970s that shaped a whole generation of policy makers’ thinking.
Now read: Economists see a labor market that keeps on trucking as payrolls bounce back
Right now, we’re in the wide part of the cycle. And as long as that lasts, it’s good for everyone.
The median family income reached $63,378 a year in February, according to Maryland research firm Sentier Research, whose studies of the post-2008 collapse in incomes sparked a lot of the argument Republican nominee Mitt Romney tried to make in 2012 against re-electing President Barack Obama. That’s up 15% since the bottom in 2011, adjusted for inflation.
It’s also up only 3.9% since 2000, according to Sentier — which is a crappy raise, no matter how you slice it. It works out to 0.2% a year.
So it’s possible to understand that right now is a good time, but also understand that there is little to no danger of the economy overheating soon and that there is a giant backlog of work to do for middle-income families. Whose prospects and spending are, after all, the bedrock of a stock market predicated on profits from selling large numbers of people cars, restaurant meals, houses and the like.
Things are really back to where they were before the Fed began raising rates in earnest in 2017 — when I was making the argument that they should raise rates slowly, if at all (and at the time, I preferred not at all). The question is really whether the central bank has the nerve to let the expansion roll on, and let people in the middle catch up on as much of their lost income growth as possible.
Or whether it will intervene to protect the marginal returns of investors who have done just fine since 2002, when the froth of the internet and tech bubble was fully excised.
Or whether a Fed board to which the president wants to name the likes of Stephen Moore and former pizza-chain operator Herman Cain will do anything but honk their noses and admire each others’ big red shoes.
That’s the best way to understand the jobs report, and the rest of this week’s data: As an argument that the economy, for all of Donald Trump’s harrumphing about growth, is actually pretty close to where we want it to be. It’s generating jobs, it’s boosting incomes, and it’s doing so pretty sustainably in part because it’s not going too rapidly.
Which has been the hard part for this economy, ever since about 1973.
