Just when we thought that the economy was really taking off last year, and that the labor market was finally on its way to full recovery, the disappointing news from the first quarter of 2015 brought us back down. It reminded us yet again how fragile and uneven the recovery has been from the Great Recession. But the new numbers for April give us back some hope, albeit not quite to the level of confidence we enjoyed late last year.
Growth of real GDP in the first quarter was nearly nonexistent, and employment growth in March (which has now been revised down to 85,000) was abysmally low. After a fourth quarter in 2015 when monthly payroll growth averaged nearly 325,000, major questions reemerged about the ongoing strength of the recovery. Economists were surprised at the extent of the economic slowdown in the first quarter, and were uncertain about how much was caused by purely temporary factors (like bad weather and a major dock strike on the West coast) as opposed to others (like a strong dollar and weakening imports) that could be longer lasting.
But, in April, payroll growth rebounded to 223,000 – not quite at the feverish pitch of 2014, but much better than in March and the first quarter overall. The household survey also indicated that the unemployment rate dipped to 5.4%. Unlike some earlier months, when unemployment declined because workers were leaving the labor force instead of gaining jobs, the labor force grew this month, as did overall worker employment.
Job growth across sectors of the economy was more uneven than it was in 2014. But employment growth in construction of about 45,000 was encouraging, perhaps indicating some further bump-up of growth in housing; and employment growth in professional services and health, of about 60,000 each, suggested again that the employment growth now is no longer in low-wage sectors of the economy (like retail trade or restaurants), as it had been in earlier years.
Of course, it’s not yet time to pop open the champagne. The extent to which economic growth will bounce back in the second quarter and beyond remains uncertain, as a strong dollar and economic weakness overseas will continue to limit US exports and employment in sectors that generate them.
And we should remain concerned about trends in wages and productivity. Wage growth last month was about 1.5% on an annualized basis for all employees, really no better than inflation; and wage growth for production and nonsupervisory workers was lower than that. Real wages and earnings remain below where they were in 2000; a 15-year stretch with negative wage growth remains the most troubling feature of the US labor market.
In addition, productivity growth in the US economy has been disappointingly low for each the past several years, and for most of the past decade. Indeed, the strong employment growth of 2014, combined with more modest growth in output (of just under 2.5% for the year), means that productivity growth was quite stagnant. If we want the wages or American workers to rise, we need more productivity growth to deliver those raises.
Yet, despite these longer-term concerns, the employment numbers in April were reassuring. We still don’t know to what extent the economy will fully rebound in the second quarter of 2015 and beyond, but perhaps the worst of the dip is behind us.
Editor’s note: This post originally appeared in RealClearMarkets on May 8, 2015.