Dollars & Sense

Answering Questions About Today’s Job Market

Average wages have increased and are rising faster than consumer prices, indicating new jobs aren’t paying less on average.
Kate Warne, August 2017

Since the end of the Great Recession in 2009, the economy has added more than 16 million jobs, bringing the total above 146 million. The unemployment rate has dropped to 4.3 percent, the lowest since 2001. When more people have jobs, consumer confidence and spending both generally rise, creating a virtuous circle. Modest economic growth and ongoing job growth should continue to be a good environment for investors.

The sluggish and lengthy recovery has prompted more intense examination of the job market and many questions.

Q: Has the job market really improved?

A: Yes. During the Great Recession, many people lost their jobs, and more workers held part-time rather than full-time jobs. The overall unemployment rate started to drop after the recession ended and then declined at a similar rate to past recoveries, reaching 4.3 percent. The underemployment rate is a broader measure that includes discouraged workers and those who have part-time jobs but want full-time work. Both signal the job market has recovered, especially considering a record 6 million jobs are open.

Q: Aren’t most of those new jobs part time or low wage?

A: Some are, but not the majority. Three measures indicate new jobs are good and improving:

• The percent of part-time workers peaked at 20.1 percent in 2010 and has dropped to 17.9 percent, which is still high but shrinking as employers hire more full-time workers, just as in past recoveries.

• Average wages have increased and are rising faster than consumer prices, indicating new jobs aren’t paying less on average.

• The unemployment rate for workers with at least a college degree is 2.3 percent, and many employers report they can’t find skilled workers.

Q: What about retail job losses?

A: Many retailers have been caught in the transition as consumer behavior shifts and consumers shop more online. But you may be surprised that the largest U.S. employers are retailers — Walmart, Kroger and Home Depot. Retail employment is above its pre-recession level but has increased much more slowly than total job growth.

Q: Does a low unemployment rate lead to higher inflation?

A: Possibly, but the job market probably isn’t as tight as the current unemployment rate suggests:

• Some people who aren’t in the workforce now may decide to re-enter as jobs become more easily available.

• Although the unemployment rate is below the estimated rate when wage increases push inflation up rapidly, that hasn’t happened.

• Wages continue to increase just slightly faster than inflation, which also suggests there is slack in the job market.

Q: Are low unemployment and a flatter yield curve early warning signs of a recession ahead?

A: An early warning sign of recession has been an inverted yield curve, when short-term interest rates are above long-term rates, combined with a low unemployment rate. That’s not today’s situation and not likely as long as inflation remains relatively mild, as we expect. The Federal Reserve can stay patient and continue to raise short-term interest rates at a slow pace, extending this expansion.

Q: How do automation and globalization affect job growth long-term?

A: Historically, automation and globalization have increased employment, and we think that will happen again. Jobs requiring different skills or in new industries increase, while others are eliminated, especially in declining industries. These transitions are disruptive, and those who lose a job may not be able to find another easily.

As a result of these and other trends, we think there will be more workers and more work to do, benefiting those with more education and skills. The future of work is always changing, creating uncertainty, but we think the long-term prospects for jobs, economic growth and the outlook for future generations are favorable.

Q: What’s the outlook?

A: Many of the concerns about the job market stem from the Great Recession and the slow recovery, but most signs point to continued solid job growth.

A growing economy is the key to adding jobs, boosting consumer spending and supporting further growth as well as rising stock prices over time. In our view, the still-improving job market is not yet too tight, which is one more bullish sign for investors.

Kate Warne, PhD, is an investment strategist at Edward Jones.


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