US unemployment at 16-year low, but economy's weak spots remain

The judgment of what constitutes strong or tepid job growth has shifted as expansion ages

Unemployment sank to 4.3 percent in May, its lowest level in 16 years, the government reported Friday, but halfhearted wage growth and a shrinking labor force revealed the economy’s stubborn weak spots.

While the downsides sent bond prices lower, the report is unlikely to deter the Federal Reserve from raising interest rates when its policy makers meet in Washington this month. “It is not enough to derail the Fed at all,” said Dan North, chief economist at the credit insurer Euler Hermes North America.

The milestone on the jobless rate came with a middling increase of 138,000 in payrolls and revisions that reduced the gains in the previous two months. It mainly reflected a decline in the share of working-age adults who have a job or are in the market for one.

The judgment of what constitutes strong or tepid job growth has shifted as the expansion ages. With more baby boomers retiring each year, economists estimate that the monthly addition of roughly 100,000 jobs should be enough to absorb those entering the workforce, including newly minted graduates.

“Even though job growth slowed, it’s still well above where it needs to be to keep up with the working-age population growth,” said Jed Kolko, chief economist at Indeed, an online recruiting site. “It’s inevitable that we would start to see a slowdown in the payroll numbers. Month-after-month job gains in the 200,000 range are not sustainable longer term. The working-age population is growing too slowly to support that.”

Only twice in the last eight months has that 200,000 figure been reached; the average over the last three months has been 121,000. Analysts are split on whether the slower pace is a sign of the labor market’s tightness or its slack. Those who believe the economy is reaching full capacity, or is already there, argue that there are just not that many available workers left.

“Since 2012, this has been a tremendous period of steady, solid job growth — historic in many ways — that has slowly absorbed most if not all of the underemployed and unemployed people last year,” said Alan MacEachin, chief corporate economist at Navy Federal Credit Union.

Employers continue to complain about how difficult it is to hire workers. “We have 50 to 60 openings in Pennsylvania and probably close to 100 openings across the country,” said Mark Traylor, president of the Ames Companies, whose wheelbarrow factory in Harrisburg recently played host to President Trump.

“We’ve really had to change our tactics of how we source associates,” Mr. Traylor said. His company has begun working with high schools and community colleges to interest students in entry-level manufacturing and distribution jobs — paying about $15 an hour — which have been particularly hard to fill.

Skeptics argue that if the labor market were truly stretched, wages would be rising faster. Instead, year-over-year wage growth has declined since the end of last year to 2.5 percent, just a nose in front of inflation.

“That’s more of a softening than a tightening story,” said Jared Bernstein, who was chief economic adviser to Vice President Joseph R. Biden Jr. early in the Obama administration.

The skeptics included bond traders who drove yields down on Friday, betting that even if the Fed goes ahead with a rate increase this month, it will think twice about further moves in the second half of the year.

Also troubling is the decline in overall participation in the labor force, which has trudged along below 63 percent during the recovery, compared with more than 66 percent before the recession. Some of the tiny gains that had been made were knocked off in May, showing more people were dropping out of the labor force than returning. 

“That’s always ugly,” said Mr. North, the Euler Hermes economist.

Moreover, he added, those who have been out of the job market for a while or lack up-to-date skills may have less bargaining power when they re-enter. Low wages and fluctuating schedules have also sown anxiety among many Americans.

Among political leaders, responses predictably split along partisan lines.

“We’re not worried about slowing job growth,” Gary D. Cohn, director of the White House’s National Economic Council, told CNBC. He pointed out that the Labor Department’s broadest measure of unemployment, which includes part-time workers who would rather have full-time jobs and those too discouraged to search, dropped to 8.4 percent, its lowest level since 2007.

By contrast, Representative Nancy Pelosi of California, the House Democratic leader, said, “May’s jobs report is a sobering wake-up call for President Trump and House Republicans, who continue to push a disastrous agenda that targets hard-working American families and endangers economic growth.”

Job recruiters continue to see a divergence in the fortunes of workers with advanced skills and those without them.

“The hiring for very specific skilled and highly skilled workers is at an all-time high right now,” said Jim Guerrera, managing director at SC Novi in Michigan, a recruiting firm specializing in the industrial and automotive sectors. “But people who don’t have a differentiated skill set are having a harder time finding a position.”

He said that while large corporations were willing to train workers, smaller firms were more wary. “Less and less people are willing to train,” Mr. Guerrera said. Younger people tended to change jobs more frequently in the past, he said, so companies do not want to make the investment only to see their new hires leave in a couple of years.

Sectors with the largest gains included health care, professional and business services, leisure and hospitality, and mining.

The government — once a pillar of steady, middle-class employment — shrank by 9,000 jobs, while the retail sector lost more than 6,000. During much of the recovery, retail could be depended on to churn out more jobs. But it has disappointed in 2017, with heavy losses. This week, the clothing company Michael Kors announced that it would close 100 to 125 stores in the next two years.

“Retail isn’t dying, but traditional retail is dying,” Mr. North said. “There is creeping Armageddon for brick and mortar.”

The transformation of the retail business wrought by online commerce has caught the attention of employers across sectors. “There’s an overriding concern with everybody I talk to,” said Frank Friedman, chief operating officer of the international accounting and consulting firm Deloitte. “How is technology going to disrupt — if at all — my business?”