Falling U.S. jobless rate reflects strongest job creation in decades
The sizzling U.S. economy is encouraging Americans to go out to eat more and enjoy themselves. Soon the unemployment rate could fall to levels last seen in 1969.
The U.S. economy is stoked.
How stoked? Any month now the unemployment rate is likely to fall to the lowest level since 1969, reflecting the longest sustained burst in hiring since the internet boom some two decades ago.
The jobless rate slipped to 3.9% in July. If it falls just a bit further, to 3.7%, it would reach a nadir last seen shortly after the famed Woodstock music festival 49 years ago.
Will it happen in August? Maybe not, but most economists think unemployment will fall toward 3.5%. Businesses are stuffed with orders and they need more workers to get the goods out the door or to provide all the services Americans desire.
The biggest problem they face is finding enough people with the skills they need to fill a record number of job openings. The U.S. is running out of talent after the creation of 19.3 million jobs in the past eight years
In light of the economy’s strength, job creation is also expected to bounce back after a modest 157,000 increase in July that was the smallest in five months. Summer-related changes in education employment may have skewed the numbers.
Hiring is expected to total closer to 200,000 in August, economists say. The employment report will be released on Friday.
“As long as firms can find job candidates to their liking, employment should continue to expand at a hefty pace,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
The U.S. jobs market is so strong now it doesn’t really matter much if hiring speeds up or slows down. What matters most to investors and the Federal Reserve is whether the growing shortage of labor forces up wages and fans the flames of inflation.
So far the answer has been no. Workers in some rapidly growing occupations and those who switch jobs might be earning significantly higher pay, but most workers are only eking out modest gains.
Average hourly wages, for instance, have risen just 2.7% in the past 12 months, well below the 3% to 4% gains that typically prevail when the economy and labor market are this strong.
Sooner or later the laws of economics will probably reassert themselves, though, and annual wage growth will creep up to 3% or more.
“We suspect that wage growth will also start to show clearer signs of accelerations soon,” contended Andrew Hunter of Capital Economics.
Until then, the Fed is almost certain to stick to its gradualist approach to raising U.S. interest rates. Although inflation is rising, it hasn’t reached the danger zone yet. And the uncertainty in President Donald Trump’s Washington, including the specter of damaging trade wars, is also giving the Fed reason to move cautiously.
The trade deficit, for its part, is likely to widen in July for the second straight month and keep the U.S. on track to post the biggest annual gap in 10 years.
Even if Trump wins more concessions in his disputes with key trading partners, large U.S. deficits won’t fall rapidly anytime soon. The U.S. no longer makes many of the things Americans buy, especially consumer electronics. The trade report will come out Wednesday in a holiday-shortened week.
Look at the bright side, though: One reason the trade deficit is so high is because of a surging U.S. economy, as Americans can afford to buy more stuff than people in many other countries.