Much of the economic data suggests that the slowdown in the first quarter is passing—this morning’s personal spending report is a good example. But, as always, what matters most for the economy is jobs.
This Friday’s jobs report should help confirm that the slowdown has passed and that the economy continues to be strong, with job growth expected to pick up from 164,000 in April to 190,000 in May. Although job growth was softer earlier in the year, the longer-term average has continued to move higher. It is now up to about 200,000 per month, which is above 2017 levels.
If job growth meets expectations, this would be the highest level in the past two months and would push the six-month average growth rate even higher. This increase would suggest that, despite all of the labor supply concerns, there are still enough people available to let companies keep hiring.
Moreover, it would show that labor demand continues to be high enough to absorb new entrants into the labor force and continue to drive the unemployment rate down. April’s 3.9 percent unemployment rate was a cycle low, but the continued run of job growth above labor force growth suggests it could decline even more. That said, unemployment is unlikely to decline further in May, as the labor force declined in April and is likely to rebound.
One major reason job growth is likely to continue is how much of it has come from the goods-producing sectors. Construction, manufacturing, and mining employment is currently expanding at the fastest rate since 1998—a positive signal, as these jobs are signs of economic health. Regional surveys suggest that trend will continue, which should keep job growth in these sectors healthy. After weaker growth in the service sector, industry surveys also suggest that area will continue to gain.
This strength across the board should also push up wage growth, which is expected to tick up from 0.1 percent in April to 0.3 percent in May. Further, the annual rate is expected to rise from 2.6 percent to 2.7 percent. Here again, the growth in goods-producing jobs, which are usually well paying, is a positive factor. Given this, as well as all of the other positive factors, there may be some upside here. Broader measures of wage growth have been trending higher at a faster rate than the wage number itself, so there is certainly room for faster growth.
Overall, the expectations for this report are for continued solid growth, with real room for some upside. If the report does meet expectations, it would suggest that the economy has indeed rebounded from a slow first quarter and that growth continues. It would also provide further grounds for the Fed to raise rates in June.