Going off last month’s tax bill debate alone, it would be understandable if you concluded that the economy was struggling to add jobs and needed a big jolt. In fact the job market is on solid ground, with firms adding 148,000 jobs (a bit down from November), bringing total job creation for 2017 to just over 2.0 million. That’s no big change from the previous six years, when the economy actually added more jobs per year (2.4 million per year). Given the depths of the great recession, it’s taken that long to build momentum for a more widespread national economic recovery in 2018. Here are the key takeaways from the year’s final report:
- Ten years after the Great Recession, the job market finds its footing. Ten years ago, the financial crisis pushed America into the greatest recession in generations, with the economy losing 8.8 million jobs and the unemployment rate shooting up from 4.4 percent in 2007 to 10 percent in 2009. The unemployment rate is now 4.1 percent, better than it was in December 2007 (5 percent), but unchanged from last month. The percent of Americans working is now better, and on par, with what it was in December 2007 (62.7 percent). It took the longest economic recovery on record to bring the job market back to what feels like a healthy state. But, as Elise Gould of the Economic Policy Institute points out, the 2007 recovery was tepid—the goal should be more years of economic growth to make up for lost potential and get to a true full-employment economy such as in 2000.
- When will the raises come? The news that workers need, and still haven’t gotten, is a big pay raise (another promise of Trump’s tax bill). Average hourly earnings were only up 2.5 in December, still short of the 3–4-percent growth targeted by economists to raise living standards. Weekly earnings are growing a little faster (2.8 percent) as employers are asking employees to work a few more hours as the economy improves. And, if the unemployment rate continues to drop across the country, as it has in certain fast-paced metro areas such as Minneapolis, we will finally see the broadly shared wage growth that remains the puzzle of the current recovery.
- There are more Americans to hire. For sure, many employers are complaining about their ability to hire workers. But, it’s continued tightening in the labor market that’s needed to put upward pressure on wages—and nationally there’s still room to grow. Today’s 6.6 million unemployed are not the quick job-switchers of a full-employment economy—a recession-level 22.9 percent have been out of work for six months or more and would be ready to work if there were good jobs to be had. The labor force stayed flat at 62.7 percent in December, still well below levels a decade ago (66 percent). Among prime-age workers alone, if labor force participation returned to its historic peak level, there would be another 3.5 million Americans in the workforce. By no means is the economic recovery complete.
Looking at President Trump’s promises on manufacturing through today’s job report
The lag behind true full employment is especially noticeable in the manufacturing sector—which still has nearly 1.2 million fewer jobs than a decade ago. The states most dependent on manufacturing, such as Illinois, Ohio, Mississippi, Michigan, and Pennsylvania, are among those with the highest unemployment rates—a fact with an especially high impact in smaller metro areas such as Peoria (IL), Saginaw (MI), and Michigan City (IN), which have the highest unemployment rates in those states.
President Trump made big promises about rebuilding manufacturing jobs during his campaign. One year into his presidency is a good time to look at how well this critical sector is doing.
- Manufacturers had a banner year in 2017. In 2017, manufacturers added 196 thousand jobs. That’s good news, given that factory growth had plateaued in 2015–16, after four years of solid growth from 2011 to 2014 (167,000 jobs per year). Manufacturing is now growing faster than the overall jobs growth rate, with factory employment up by 1.6 percent compared to overall job growth of 1.4 percent. The Institute for Supply Management closely tracked survey of manufacturers jumped to 59.7 in December; any level above 50 is associated with a growing economy, and the 59.7 level is particularly bullish. With manufacturers showing solid demand for their products, another strong year of manufacturing job growth is possible.
- Other manufacturing subsectors are making up for the slump in the auto industry. The bounceback of the auto industry carried the manufacturing recovery from 2011 to 2015—transportation-related manufacturing added nearly 300,000 jobs in those five years—but auto factory employment has been stagnant over the past two years. It’s actually a good sign that the manufacturing employment recovery has become more broad-based in 2017. Figure 1 shows that, other than transportation equipment, the other big manufacturing sectors such as machinery, chemicals, and food processing are generally growing faster than the overall private-sector economy.
The jobs report ended December on a muted note. But the recovery is going strong as we enter 2018. Now the challenge is to continue to expand to those parts of the economy and the country that have not fully enjoyed these gains. The strong year in manufacturing is one good sign that the jobs recovery is moving into that critical territory.