Something is haywire in the jobs economy.
The unemployment rate hit a puny 3.5 percent in September, the lowest in 50 years, the U.S. Labor Department reported Friday. The country also added a solid 136,000 jobs and the number of people participating in the workforce remained at a six-year high.
Still, wage growth slowed.
Average hourly earnings slipped by a penny in September. More to the point, earnings grew by only 2.9 percent from a year ago. That’s down from 3.2 percent in August and below 3 percent for the first time since last year.
In the past, when the labor market tightened, employers raised wages. Bigger paychecks helped them retain workers. Higher salaries also lured people who weren’t working back into the labor pool. In general, the harder it was to find workers, the faster wages would rise.
With the lowest unemployment rate in 50 years, you’d expect robust wage growth. That didn’t happen in September. It might pick up, but there are signs that the broader economy is slowing down. Consumer confidence fell in September and factory activity weakened for the second straight month. Manufacturing lost another 2,000 jobs.
The ongoing trade dispute with China, and the political showdown over whether to impeach President Donald Trump, adds to the uncertainty, which can make employers less likely to hand out raises. They prefer to keep expenses low and cash on hand in case the economy turns sour.
The last time the unemployment rate was so low was December 1969. The economy had grown for nearly nine consecutive years. But that month also marked the start of a mild 11-month recession, showcasing why a low unemployment rate doesn’t mean a recession isn’t lurking around the corner.
On the plus side, the country gained jobs for the 108th consecutive month. Health care led the way with 36,000 new jobs followed by professional and business services, which added 34,000. Governments — mostly state and local — added 22,000. The beleaguered retail trade sector lost another 11,000 jobs and is down 195,000 jobs since January 2017.
Job growth has slowed, falling from an average of 233,000 jobs a month last year to 161,000 so far this year. That could be a result of the extremely tight labor market. With so few people looking for work, businesses can struggle to fill open positions. If they can’t fill open jobs, they won’t create new ones as quickly.
The country might not need to create as many new jobs in the coming years. Baby Boomers born between the early 1940s and early 1960s are retiring in droves. In other words, they are leaving existing jobs that younger workers can fill. The massive exodus of older workers could help mask a mild downturn in the jobs market, as long as we create enough jobs to keep up with the growing population.
Two things to watch going forward:
What does the U.S. Federal Reserve make of the jobs report? Does it see enough positives to keep interest rates where they are now? Or will it cut rates to spur more spending, which can help a slowing economy make a softer landing?
And will consumers keep spending, especially headed into the holiday season, which is the most lucrative time of the year for many retail businesses?