The labor market appears to be rebounding from sluggish economic activity in the first quarter. U.S job growth increased at its fastest pace in two years in April, but the surge hasn’t helped the long-term unemployed.
In April, the economy added 288,000 jobs— far outpacing economists’ forecasts. Despite the unequivocal employment jump that signals more Americans are entering the workforce, demand for workers is still lacking to compensate for people who were laid off or couldn’t find jobs during the Great Recession.
The job report reveals that businesses are putting more people on their payroll, but “workers aren’t being hired quick enough to make up for the excessive inventory of people that have been unemployed for the past five years,” said Gary Burtless, senior fellow, at the Brookings Institute, an economic policy think-tank based in Washington D.C.
“New jobs are being created for new people, he said. And we are only gradually dwindling down that number of excess unemployed workers.”
At the current job-creation rate, closing the gap for jobs lost will continue to be prolonged, even as the amount of jobless workers trend downward.
Unemployment fell to 6.3% from 6.7% —the lowest since the economic crisis in 2008, the Labor Department said on Friday. The drop, however, is because the labor force–that is, people working and actively looking for jobs fell sharply.
“If people were dropping out of the labor force because they had given up, that would concern me,” said Thomas Perez, U.S Secretary of Labor.
Perez added that the decline in labor force participation isn’t because workers are “discouraged,” rather that seasonal workers and recent college graduates aren’t entering at high numbers.
The Federal Reserve may have lifted their eyebrows at the job creation numbers. After GDP tumbled to its lowest in two years– rising a mere 0.1 percent on Wednesday this week, the burst in employment may keep them on track for scaling back on quantitative easing. However, the extent of slack in the labor market and long term-unemployment is high and remains at the top of their agenda.
“It has been bouncing around for the last six-months or so, but it has basically been flat,” Perez said, referring to the fluctuations in labor force participation.
But the shrinking labor force isn’t the only thing the Fed will be pragmatic about.
Wages stayed flat for the month of April. Average hourly earnings increased only 1.9 percent over the past year. Stagnant wages, experts say, indicate that the employment-to-population ratio aren’t moving in tandem, which is why earnings growth has been static–specifically for middle-wage workers.
“If there is tightness in the job market, we’d expect to see an acceleration in wages,” Burtless said. “There is a shortage in demand for workers and that results in excess unemployment and sluggish wage growth.”
Economists are also suggesting a higher rate of inflation is essential to speed up the recovery. And raising prices on goods will encourage Americans to spend more, said Justin Wolfers, a senior fellow at Brookings Institute and Op-Ed contributor for the New York Times.
“There is no inflationary pressure anywhere in the economy,” Wolfers said. “The fact that inflation isn’t re-emerging indicates that there is lackluster economic growth.
The frigid winter ravaged most of the nation had slowed GDP precipitously, yet the outlook for 2014 still remains at 3 percent. Experts suggest one policy solution to generate stronger growth is to raise wages.
“To stimulate growth is by consumption and the way you stimulate consumption is to put money in people’s pockets,” Perez said.
The payroll services company, Automatic Data Processing reported on Wednesday, a seasonally adjusted gain of 220,000 private-sector jobs. Private sector and professional service jobs have been resilient, and the manufacturing sector accelerated as well.The average number of hours worked per week last month bounced back significantly following the harsh winter months.
The food industry also contributed to the robust job growth. Restaurants and bars added 333,770 job in the past year.
“There is a mix of full-time and part-time employees, and we do plan on bring in more people in the summer, said Dave Hunt, an independent restaurant owner in Washington Heights in New York City.
Hunt said he felt the effect of bitter winter months on his business, and had to offer more specials on the menu as traffic in his Irish pub slowed. But he remains optimistic now that more people are coming through the doors as temperatures start to warm.
“We lost about 20 percent in revenue last year, so we had to cut back on staffing,” said Peter Walsh, the co-owner. “Business is picking back up now and it seems like people have a lot more disposable income.”
The mediocre increase in GDP in the first quarter was primarily reflected from personal expenditures. Retail sales had its best performance since September 2012, and buyer optimism remains at its highest level in six years.
But, despite strong job growth and growing consumer sentiment, the economic recovery has yet to regain solid momentum.
“Long term unemployment rate is still twice as high as one would expect from a prolonged recession, so we need to pick up the pace in order to get back to the level of full employment,” said Perez.