June 01, 2022
Dean Baker
(The monthly Employment Situation is scheduled for release by the Bureau of Labor Statistics on Friday, June 3rd, at 8:30 AM Eastern Time.)
The unemployment rate remained unchanged at 3.6 percent in April, despite strong job growth. I had expected some drop in the unemployment rate, especially given the strong job growth, but the household survey is always somewhat erratic.
All signs point to another good month of job growth in May; that should push the unemployment rate down to at least 3.5 percent, making it tie for the lowest rate since 1969. A 0.2 percentage point drop would give us the lowest rate in more than 50 years.
Wage Growth May be Moderating
The fear of an inflationary spiral depends on an accelerating pace of wage growth, which gets passed along in higher inflation rates, leading to further increases in the pace of wage growth. This does not appear to be happening.
Overall wage growth has been slowing in recent months. The average hourly wage was up 5.5 percent year-over-year in April but increased at a 4.4 percent annual rate when comparing the last three months (February-April) with the prior three months (November-January).
This slowing was even sharper in low-paying sectors that had seen rapid wage growth. Wages for production and nonsupervisory workers in the leisure and hospitality sector rose at an 8.4 percent annual rate when comparing the last three months with the prior three months. This is down from a year-over-year increase of 12.6 percent.
The annualized rate of wage growth, comparing the most recent three months with the prior three, is likely to remain close to 4.4 percent with the May data. However, this pace of growth is not far out of line with a rate that would be consistent with moderate inflation. Year-over-year wage growth peaked at 3.6 percent before the pandemic, even as inflation remained well below the Fed’s 2.0 percent target.
Share of Unemployment Due to Voluntary Quits
The share of unemployment due to people who voluntarily quit their jobs indicates workers’ confidence in the labor market since it implies they are willing to leave a job even before they have a new one lined up. This figure peaked at 15.1 percent in February. It was 13.0 percent in March and 13.1 percent in April.
That is somewhat below the levels since before the pandemic. The share of unemployment due to quits averaged over 14.0 percent in the second half of 2019. If the number stays near 13.0 percent, it will be another indication of a weakening of the labor market.
Labor Force Participation Rates Approaching Pre-Pandemic Peaks
Labor force participation rates (LFPR) edged down slightly for most demographic groups in April, but they are still near pre-pandemic peaks. The employment-to-population ratio (EPOP) is often a better measure, since there is less ambiguity about whether someone is actually working than if they are looking for work.
For people between the ages of 25 to 34, the EPOP rose 0.2 percentage points to 80.2 percent, 0.4 percentage points below its pre-recession peak. For people between the ages of 35 and 44, the EPOP fell 0.4 percentage points to 80.6 percent, 0.8 percentage points below its pre-pandemic peak. And, for workers between the ages of 45 and 54, the EPOP fell 0.4 percentage points to 78.8 percent, 0.9 percentage points below the pre-pandemic peak.
It is likely that we will see further gains in the employment rate for all three age groups of prime age workers as the impact of the pandemic fades and we get closer to pre-pandemic peaks. The number of people who reported being out of the labor force due to COVID-19 fell to 590,000 in April, from over 800,000 in March. It is likely to fall further in May.
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