February’s employment report showed a gain of 295,00 jobs and a decline in the unemployment rate to 5.5 percent. The report is another in a string of strong employment reports, but it also contains depressingly familiar news about weak wage growth and millions of workers still short of work.
Job gains were spread widely across all sectors, with particularly strong gains in the service sector. Construction added another 29,000 jobs despite bad weather, and manufacturing added 8,000 jobs. The only significant weaknesses were in mining (-8,000) and petroleum and coal products (-6,000), reflecting lower energy commodity prices.
On the other side of the ledger there continues to be abundant labor supply. Though the unemployment rate ticked down to 5.5 percent, there are still 8.7 million unemployed workers; another 6.6 million workers who are working part-time but want full-time work; and a further 6.5 million workers who would enter the labor force if a job were available. That totals 21.8 million workers who would like more work, which provides clear evidence we are still far from full employment.
The situation remains especially tough for minority workers. The white unemployment rate is 4.7 percent; the Hispanic unemployment rate is 6.6 percent; and the African-American unemployment rate is 10.4 percent. These differential unemployment rates reflect the low costs of discrimination which allow firms to pass over qualified minority job candidates. Tight labor markets increase the cost of discriminatory hiring practices, thereby pushing firms to hire minority workers. That makes tight labor markets essential for minority workers to share in prosperity, and they also raise wages for all.
The abundance of labor supply is further confirmed by continuing weak wage numbers. Average hourly wages rose by 3 cents to $24.78 and have risen just 2 percent over the year. Wage increases have slightly exceeded inflation but workers are still barely sharing in productivity growth. That means there is no danger of inflation from a wage – price spiral.
In a manner of speaking, the economy has already been subject to a shadow interest rate hike because of the strong dollar. That will put pressure on manufacturing and other export sectors, and it will also create deflationary pressure via lower import prices. Raising interest rates now would add an additional headwind, and it would also aggravate the strong dollar problem by attracting more foreign money to Wall Street.
The implication is clear: the Fed must hold off raising interest rates. We are a long way from full employment; there is zero evidence of accelerating inflation; and there is time to raise rates later when needed. It would be foolish to jeopardize our progress in the name of fighting phantom inflation.