U.S. Unemployment Falls Below 4 Percent

5/21/2018
 

The U.S. unemployment rate dipped to 3.9 percent—its lowest point since 2000—last month, as employers added 164,000 new jobs, but labor force participation remains low and wages showed only modest growth, according to the latest employment report from the Bureau of Labor Statistics (BLS).

"[The April] jobs report is the 91st consecutive month the economy has added jobs, the longest streak on record since the BLS began reporting labor market figures in the 1930s," said Andrew Chamberlain, chief economist at Glassdoor. "That's a remarkably strong pace for an economy that's nearly nine years into an economic expansion with a dwindling number of available workers to hire."

While the number of new jobs is less than the 12-month average of 191,000 jobs, it is not a disappointing number, agreed Martha Gimbel, research director for Indeed's Hiring Lab, the labor market research arm of the global jobs search engine. "It is still well above the number of jobs needed to keep up with population growth," she said. Considering how long the economy has been adding jobs, I "it is impressive to still see job creation at this level. Expectations may need to be adjusted for the jobs report moving forward."

Professional, Business Services Lead the Way

The top sectors adding jobs in April were professional and business services, which includes many technology companies (54,000 jobs,) health care (29,300 jobs), manufacturing (24,000 jobs), leisure and hospitality (18,000 jobs), and construction (17,000 jobs). "Despite fears of a looming trade war and tariffs on steel and aluminum, both manufacturing and construction added jobs to payrolls in April," Chamberlain noted. Three sectors—wholesale trade (-9,800 jobs), government (-4,000 jobs), and motor vehicles and parts (-900 jobs) lost jobs last month.

Milestone for Unemployment

Unemployment is at its lowest level in 18 years. It sat at 4.1 percent for the last six months.

"In the last 40 years, there have only been five months during which the unemployment rate was 3.9 percent or lower," said Cathy Barrera, the chief economist for ZipRecruiter. "For a sustained period of unemployment less than 4 percent, you need to go back to the late 1960s."

Both the labor force participation rate (62.8 percent) and the prime-age employment rate for workers aged 25-54 (79.2 percent) maintained in April. "Over the next few months, it will be important to see if the recovery in the prime-age employment rate is starting to plateau," Gimbel said. "If it does, this could be a sign of wage growth to come as the rate of workers entering the labor force slows down."

The number of long-term unemployed (those jobless for 27 weeks or more) was reported at 1.3 million in April and accounted for 20 percent of the unemployed.

"The broadest measure of unemployment, which includes workers working part-time for economic reasons, the marginally attached, and the discouraged, finally fell to 7.8 percent, marking the first time it has reached its pre-recession low," Gimbel said. "However, the percent of the labor force that is working part-time for economic reasons has been hovering around 3.1 percent for a few months, which may mean that recovery in this measure is stalling out."

Where's the Wage Bump?

Average hourly wages increased by four cents ($26.84) in April and by 67 cents year-over-year.

Wage growth has been picking up slowly, leading many to wonder how much tighter can the labor market get before sparking widespread wage gains?

"This report splashes a little cold water on the notion that wages are on the verge of accelerating," said Josh Wright, chief economist for recruitment software firm iCIMs. Hourly earnings growth has fallen back to its average over the prior 12 months. "There's little doubt that wage pressures are rising as the labor market continues to tighten, but it remains to be seen whether and when they will jump sharply, given ongoing shifts in productivity and demographic trends, as well as overseas competition."

Barrera added that employer behavior is a prime factor in stagnant pay. "It takes time for hiring managers and business owners to see that the strategies they have been using are no longer working and then to adjust accordingly. Also, given that hiring and wage offers are decisions with long-term impact, uncertainty or anxiety regarding economic sustainability can make employers hesitant to increase offers."

Candidates in the Driver's Seat

With roughly 6 million open jobs in the U.S. today, and employers struggling to fill open roles, workers in technology, health care and professional services are in a very strong bargaining position when it comes to negotiating for pay, Chamberlain said.

"Nearly all of the remaining slack from the last recession is now gone from today's labor market, making it unlikely that wage pressures can remain muted for much longer," he said. "We expect to see more upward pressure on wages throughout the summer as a result."

Nick Cromydas, co-founder and CEO of Hunt Club, a tech-enabled recruiting service based in Chicago, said employers should build relationships with passive candidates.

"With unemployment so low, the best candidates for an opening are less likely to be actively searching for a new position," he said. "They're much more likely to be already happily employed, but open to hearing about new opportunities. To reach these candidates, recruiters can't just offer a title bump, but rather, need to demonstrate why a new position is tailored to the candidate, and how it fits within a longer-term career plan."

Cold outreach tactics will not work, he said. "Companies that are looking to attract passive talent in this tight job market should first build relationships with a pipeline of talented candidates, then consider each candidate's needs before asking them to uproot their personal and professional lives for a career opportunity. It takes a long-term plan."

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