Continued surge in private payrolls, but sluggish gains in hourly pay

The robust pace of employment gains continued unabated in February. U.S. employers added 295,000 jobs last month, capping a 6-month span in which they boosted payrolls by 293,000 a month. Virtually all the job gains—97 percent of them—were in the private sector. Over the past year, private payrolls have grown 3.2 million. In percentage terms this gain is the fastest we have seen since the 12-month period ending in September 1998. Overall job gains, including those in the public sector, boosted payrolls 2.4 percent over the past year. This is the fastest pace of growth since the year ending in May 2000. Though the employment rebound from the 2008-2009 recession has been slow, it appears to be picking up momentum.

Employment gains reported in the BLS’s household survey were slower than those estimated in the employer survey. February employment gains in the household survey were just 96,000, almost 200,000 below the payroll gains reported by employers. However, employment gains estimated in the household survey are much more variable from month to month than those seen in the employer survey. Over the past six months the two surveys show a similar rate of overall improvement. Employment gains in the household survey have averaged 308,000 a month; payroll gains in the employer survey have averaged 293,000 a month. In either case, the pace of job gains is more than three times faster than needed to keep the unemployment rate from rising.

Indeed, the unemployment rate fell 0.2 percentage points in February, dropping to its lowest level—5.5 percent—since May 2008. The decline was mostly due to a dip in the size of the labor force, which shrank 178,000. However, the main reason the unemployment rate has shrunk more than a percentage point over the past year is that 3.0 million additional adults now hold jobs. Virtually all of the new jobs are full time. Even if a few employers are limiting the work hours of some employees to avoid the Obamacare mandate to provide them with affordable health insurance, all the employment gains we have seen since the Affordable Care Act went into effect have been full-time jobs.

The latest employment report contains a few hints that the job market is still some distance from full employment. The number of adults who work part-time but who want to work on full-time schedules is 50 percent above the number reported in 2007. Although the number of workers unemployed longer than six months has fallen steeply over the past five years, it remains more than twice as high as it was before the Great Recession. The labor force participation rate has stabilized at a level slightly below 62 percent, but according to calculations by the Council of Economic Advisors, this is still more than a percentage point below the level we would expect in a full-employment economy. A tight labor market should bring more job seekers into the workforce. So far, however, the expected rebound in participation has failed to materialize.

Finally, the employer survey shows that nominal wage gains remain sluggish. Average hourly earnings climbed $0.03 in February compared with January, and they have only increased 2 percent over the past 12 months. This is essentially the same rate of wage gain we saw during the previous five years. Of course, the purchasing power of workers’ hourly wage is now improving as a result of the drop in energy prices. For most workers, however, the plunge in gas prices was not anticipated when they last negotiated pay with employers. If the labor market becomes tight enough to spur a bidding war among employers to attract qualified workers, we would expect to see the tightness reflected in a faster rate of nominal wage gain. So far, however, pay gains remain eerily subdued despite clear signs of a steadily improving job market.