The nine-year expansion in the U.S. economy just notched another major achievement. The official unemployment rate, as measured and reported by the Bureau of Labor Statistics, was 3.9 percent in the month of April. This followed six consecutive months in which the unemployment rate was 4.1 percent.
The trend in this data exhibits a very strong cyclical pattern. The April reading marked only the fifth time in the history of this data series (dating back to 1948) that the low range in the cycle has dipped below 4 percent, and it is the first time since 2000 that it has happened.
Looking closer at the data, total nonfarm payrolls expanded by 164,000 jobs in April. This was below the 191,000 average monthly gain of the past 12 months, but it was well above the 90,000 average monthly influx of new job seekers.
Employment in manufacturing increased by 24,000 last month. Most of the gain came in the durable goods sector. Manufacturing employment has escalated 245,000 during the past 12 months, which works out to just more than 20,000 per month on average. So, manufacturers enjoyed an above-average gain in April. About three-fourths of this gain came in the durable goods industries.
On a seasonally adjusted basis, the number of workers employed in the rubber and plastics products industries totaled 726,700 in April. This was a rise of 1,500 workers from March, and it was up 13,800 workers (1.9 percent) from April 2017.
Average hourly earnings for production employees in the rubber and plastics products sector in April increased by 8 cents to $18.32, when compared with March. This was a gain of 60 cents, or 3.3 percent when compared with the same month last year.
For managers in the industry, there are several trends in all of this data that are worth monitoring.
The first is the remarkable consistency in the graph of the number of employees. For the past six years, the period from 2012-17, the number of employees in the rubber and plastics products segment grew by a very steady 1.8 percent per year. This is close to, but still a bit below, the average growth in the overall U.S. economy during this time. And it is well below the average annual growth of 2.7 percent in the output of plastics products over this period.
The fact that the number of employees is growing slower than both the economy and the overall demand for products indicates that the productivity of the industry is increasing. Each year, it takes fewer workers to produce the same amount of product. This is corroborated by the fact that capital spending on equipment has steadily increased during the past six years.
The second trend of interest is that wage growth for industry workers (production and nonsupervisory) is accelerating. For the first half of the six-year period we are examining, the period 2012-14, the average annual increase in earnings was 1.3 percent. This data is not adjusted for inflation, so it is fair to say that wages were steady. During the past three years, 2015-17, earnings have grown by a yearly average of 2.4 percent. And to my eye, the slope of that graph is getting steeper.
Manufacturers in the sector are paying more to attract the employees they need, and they are investing more in productivity-enhancing equipment to keep up with the demand for their product. It is worth noting that despite the rise in wages in recent years, the average wage in the industry is still well below the average hourly wage of $26.84 for the entire manufacturing sector. If you find that you are losing talent to other industries, now you know why.
But overall, this was a positive employment report for the month of April, with solid, unspectacular gains registered in all the relevant data series. There continues to be a strong consensus among analysts that the gains in the manufacturing sector are being constrained by a shortage of qualified applicants.
It is hardly newsworthy to state that the outlook for the industry is good when the data on jobs and wages are rising. But I would be remiss in my duties as an analyst if I did not also mention that every other time the national unemployment rate has dropped below 4 percent, the economy entered a recession shortly thereafter.
The problem stems from what economists call the nonaccelerating inflation rate of unemployment, or NAIRU for short. History shows that there is an unemployment rate that represents a perfectly balanced labor market. When the rate is too high, it means that there is slack in the labor market, wages are stagnant and the economy is underperforming.
When the unemployment rate is too low, it means that the labor market is too tight, and this pushes wages up so fast that it causes a rapid rise in inflation. When inflation rises quickly, the Fed raises interest rates quickly to slow it down, and this causes the economy to stop growing.
When the rate is just right, the economy is said to be running at full employment. Forty years ago, NAIRU was estimated to be 6 percent. In recent years that estimate has been lowered to 4.5 percent. And today we find ourselves at 3.9 percent.
The good news is that we have been below the estimated level of full employment for several months and the economy continues to produce jobs. Wage growth is still considered moderate and there is no immediate evidence that inflation is starting to get out of control. So maybe our estimate of NAIRU is too high, or maybe the way we capture the data and measure unemployment is flawed.
Or maybe there is just a lag in the process, and the Fed soon will have to accelerate its pace of rate hikes. Achieving full employment is difficult; staying there is even tougher.