Key points
- Payrolls have averaged under 70,000 a month this year, down from 100,000 to 200,000.
- Sahm says wages and benefits are not rising in inflation-adjusted terms as health insurance costs climb.
- Sahm says without labor force growth it will be hard to sustain GDP gains, and AI is not the answer.
The US labor market is stuck between boom and bust
The jobs report describes an economy that is neither booming nor collapsing, and Claudia Sahm argues the cooling is structural. The US workforce is barely growing because of immigration policy and an aging population, which limits how many people employers can hire and how fast the economy can expand. That leaves workers with little bargaining power and wages that do not keep up with inflation, a combination that neither a boom nor a recession would produce.
Takeaways
- Labor market is low hiring and low firing. Sahm calls the balance of low hiring and low firing uncomfortable, and the layoff rate unusually low. She wants several months of strong payrolls before believing in an acceleration, noting the labor market has head-faked several times this year.
- Payroll growth has slowed sharply. Monthly gains have averaged a little under 70,000 since January, against 100,000 to 200,000 a few years earlier. Sahm ties the slowdown to slower labor force growth from immigration policy and an aging workforce, and says pushing the average back to 200,000 will take time.
- Wage gains are not keeping up. Sahm says wages and benefits are not rising after inflation, because inflation picked back up after the Middle East conflict and the health insurance costs employers pay, captured in the employment cost index, are rising. Employers absorbing those costs will not raise wages.
- Workers lack bargaining power. Average hourly earnings came in at 3.1% year over year, a little better than expected, and the quit rate ticked up only slightly in this week's JOLTS update. Sahm says that without strong hiring, workers cannot bargain for more.
- No labor force growth caps GDP gains. Sahm says consistent GDP growth is hard without a growing labor force. She is optimistic about technology improvements on the horizon, but productivity growth is tough to string together year after year, and leaning on AI is not the way to keep strong growth.
The two labor markets
- Sahm says there is some truth to the view that there are two Americas in the labor market.
- The underemployment rate rose from 7.6% to 7.9%, even as nonfarm payrolls rose 249,000 with revisions.
- The unemployment rate ticked down while labor force participation rose.
- Prime-age participation is pretty solid, but prime-age men's participation has declined over many decades.
- Sahm expects the structural pieces of the labor market to get attention given this week's election results.
- Sweeney notes the labor force participation rate came in a little better at 61.9%, and Sahm says there is no ready answer for the right number because it depends on people and their lives.