April Jobs Report: Is American Capitalism Still Broken? Asking for a Friend.

Via Capital Economics

If you want to find bad news in the April jobs report, it’s there to find. I mean, something is always there. And this report is no different. The labor force shrank, and the participation rate declined. Hours worked declined. Manufacturing job growth was just meh. The increase in average hourly earnings rate was less than expected. And while the 3.6% unemployment rate is the lowest since 1969, the broader U-7 rate of 7.3% is only the lowest since 2001.

But, gang, that 3.6% jobless rate is the lowest in 50 years, since humans first stepped foot on the Moon. And as the expansion nears its tenth anniversary, the economy is still generating gobs of jobs — 263,000 last month and a monthly average of 205,000 through the first four months of this year.

Sure, wage growth seems more solid than spectacular. But as the White House noted, the 3.2% gain in average hourly earnings over the past year means real wages continue to grow given the under-2% inflation. (Indeed, wage growth was fastest in low-wage industries, noted analyst Martha Gimbel of the Indeed Hiring Lab.) “We see no reason to downplay the strength, apart from the usual caveat about month-to-month fluctuations,” is how Goldman Sachs sums things up.

Even better, the strong employment comes on the heels of a strong productivity report. As I noted on Thursday, productivity increased at a rapid 3.6% annualized during the first three months of this year. On a year-ago basis, this put productivity growth at 2.4%, the fastest pace since early 2010 and far better than the 1% pace that has typified the post-financial crisis expansion. As Barclays economist Blerina Uruçi told The Wall Street Journal, “That means we can grow at a faster pace on a more sustained basis. It also means the economy can run hotter for longer without causing inflationary pressure.” Moreover, consistent 2%-plus productivity growth makes a 3% real GDP economy less of a stretch.

Of course, none of this means the US economy is suddenly recession-proof. And that low unemployment in 1969 was followed by a recession through most of 1970. And perhaps the productivity boomlet reflects a fakeout rather than breakout.  (“The supply side of the economy—which appeared quite favorable after [Thursday’s] productivity number—looks a little less shiny in light of the decline in the participation rate,” wrote JPMorgan’s Michael Feroli in a report.) But strong advocates of “broken capitalism” theories about wage and technological stagnation shouldn’t overlook or reflexively explain away this encouraging real-time data.