The Employment Situation in April

The economy added 223,000 jobs in April as the unemployment rate fell to 5.4 percent—the lowest since May 2008—and the participation rate ticked up. This report largely reflects the ongoing recovery, but jobs in April were likely also boosted by a temporary bounce-back from winter weather. Notwithstanding the substantial progress our economy has made, it is critical to continue the overall momentum and further strengthen wage growth. That is why the President is pursuing policies including opening new markets for U.S. goods and services through expanded trade, increasing investments in infrastructure, providing relief from the sequester, and raising the minimum wage.

FIVE KEY POINTS ON THE LABOR MARKET IN APRIL 2015

1. The private sector has added 12.3 million jobs over 62 straight months of job growth, extending the longest streak on record. Today we learned that private-sector employment rose by 213,000 in April. Our businesses and the economy as a whole created more than 200,000 jobs in thirteen of the past fourteen months—the first time that has happened since 1995. After taking into account the downward revision for the March jobs number, our economy has added 3.0 million new jobs over the past twelve months, nearly the fastest pace in more than a decade.

2. Employment growth tends to lag GDP growth by approximately one quarter. Quarterly employment growth and quarterly GDP growth exhibit a positive correlation over most time horizons, but the relationship is closest when job growth is compared GDP growth from one quarter earlier. The correlation coefficient of contemporaneous GDP growth and employment growth since 1990 is 0.60, but it rises to 0.68 when the one-quarter lag is introduced. This relationship suggests that businesses tend to hire more following periods of strong output growth, but with a lag of only a few months. Conversely, reductions to GDP growth can result in delayed reductions in employment growth.

3. Last week’s Employment Cost Index (ECI) report from the Bureau of Labor Statistics showed that continued slow growth in hourly employer health benefit costs has persisted into 2015. The ECI measures a wide range of categories of worker compensation, including wages and salaries as well as benefits. In recent years, growth in hourly health benefit costs has been unusually slow, consistent with the very slow growth seen across a wide variety of measures of health care costs in part due to the Affordable Care Act. These most recent data show that slow growth in employer health benefit costs persisted through early 2015. Indeed, the data show that hourly wages and salaries at private-sector employers rose at a faster pace than hourly benefit health costs over the 12 months ending in March 2015—the first time that has happened since 1998. The first-quarter data from the ECI have historically been a good predictor of trends in other closely-watched measures of health care costs in employer coverage, including the Kaiser Family Foundation’s annual survey of employer premiums.

4. In recognition of Older Americans Month, we observe that labor force participation for workers age 55 years or above has risen in recent decades, holding steady since the financial crisis. Although labor force participation across most age groups has declined meaningfully since the crisis, participation among older Americans has been much more robust. The labor force participation rate among those 55 and older has risen around 10 percentage points over the past three decades, and is now equal to participation rates in the 1960s. Although current levels match those last seen fifty years ago, the reasons that older workers are participating likely differ today. Rising education levels, labor force participation of women, and changes in Social Security have been identified as the most important factors boosting participation for older Americans. Improvements in health care, improvements in job quality, and increases in life expectancy also likely play a role. Although the three-decade change in participation has been stronger in this age bracket than in any other, the aging population is still reducing aggregate participation because older workers’ overall level of participation is much lower than that of younger workers.

5. April job growth in many industries was in line with recent trends, with some evidence of bounce-back from weather-related job losses in March. April was an especially strong month for construction (+45,000), following a loss in March (-9,000). Health care and social assistance (+56,000) was also particularly strong in April. April was a weaker than usual month in mining and logging (-15,000) and wholesale trade (-5,000). In fact, April was the fourth consecutive month of declining mining and logging employment, likely reflecting cutbacks in oil production. Across the 17 industries shown below, the correlation between the most recent one-month percent change and the average percent change over the last twelve months rose to 0.85 from 0.51 last month, well above the average correlation over the past two years.

As the Administration stresses every month, the monthly employment and unemployment figures can be volatile, and payroll employment estimates can be subject to substantial revision. Therefore, it is important not to read too much into any one monthly report and it is informative to consider each report in the context of other data as they become available.