Unemployment rate holds at 17-year low of 4.1%

By Eric Morath

The-Wall-Street-Journal-Logo-FontUpdated Dec. 8, 2017 6:02 p.m. ET

WASHINGTON—The U.S. economy is hitting milestones not seen in more than a decade, marked by robust hiring that has led to low unemployment and a sustained pickup in output.

Labor Department data Friday showed nonfarm payrolls rose a seasonally adjusted 228,000 in November—the record 86th straight month of expansion—after a 244,000 gain in October. Steady hiring has in turn driven the unemployment rate down to 4.1% for two straight months, holding at a 17-year low.

 That would put economic output on track for a third straight quarter of near 3% growth, a breakout, for now at least, from a long period of 2% growth. The economy hasn’t delivered three straight quarters of growth at or above 3% since a period from mid-2004 to early 2005.

The economy has stumbled at other points in the eight years since the recession ended and might do so again, but it appears at the moment to be on especially firm footing.

Hiring slowed after hurricanes in August and September but has powered back. Meanwhile business investment is accelerating, stocks have hit records, consumer confidence remains strong, and the rest of the global economy is on an upswing. Economic growth accelerated in Europe during the summer months and Japan is experiencing its longest sustained expansion in 16 years.

“Globally everyone is running in the same direction,” said Gregory Daco, economist at Oxford Economics. “That sets up global growth in 2018 to be the best since the crisis.”

Investors greeted the latest jobs news as another sign the economy is advancing at a robust and sustainable pace. The Dow Jones Industrial Average closed up 117.68 points Friday, or 0.49%, at 24329.16.

One gray mark in Friday’s report was wage growth. Average hourly earnings for private-sector workers increased five cents last month after declining in October. Wages were up 2.5% from a year earlier in November—near the same lackluster pace maintained since late 2015.

The low jobless rate might mean workers are finally getting the bargaining power to start demanding and winning higher wages, though longer-run forces are helping to hold wages in check. Well-paid baby boomers are being replaced by lower-earning millennials and the development of a global labor market means factory workers in Ohio compete with those in China. And still soft inflation makes it hard for companies to pass along wage increases to customers.

Sparkhound LLC, a Baton Rouge, La., technology company that helps clients migrate their data to cloud storage, is hiring, including recently doubling the size of its more-than 50-person Houston office.

General Manager Dave Baxter said the company is seeing pressure to raise wages for workers with technology skills—but it is having difficulty passing along cost increases to clients, especially because its services are sold as a cost-saving technology.

To respond, Sparkhound focuses most of its hiring on less experienced workers, who command lower salaries, and partners five or six of those workers with a seasoned veteran.

“Baton Rouge is a tough market to find experienced people,” Mr. Baxter said. “We’re trying to get some folks fresh out of school.”

It is hard at this point to pinpoint how much of the apparent economic uptrend can be attributed to policies coming out of Washington and how much is due to other factors. The Trump administration points to its efforts to cut taxes and pare back business regulation. But other factors—such as long-delayed economic recoveries in Japan and Europe—are also likely independently at play.

Some executives say tax cuts will help if they happen.

Laurel Highland Total Communications, a cable and phone company that operates in rural areas of Pennsylvania, has kept its staff lean in recent years in response to a lackluster economy in the region and burdensome regulations,said Chief Executive Jim Kail. The company is now looking to add a few workers to its 65-person staff.

“If the corporate rates go down, that frees up a lot of cash. We’d be looking to hire and make investment in equipment,” Chief Executive Jim Kail said.

Megan Greene, economist at Manulife Asset Management, doubts the tax plan will boost economic growth in the longer run. Business investment incentives, she notes, phase out after five years.

“It could be a short-term sugar hit that will stoke the stock market, but not set us up for sustainable growth moving forward,” she said.

In the near-term, a combination of low unemployment and modest wage growth and inflation is likely to keep the Federal Reserve on a path of gradually pushing up short-term interest rates, including another rate increase at the Fed’s next policy meeting next week.

Central bankers could become more inclined to push rates up at a slightly faster pace next year if the job market keeps cranking out strong monthly gains. In September, Fed officials forecast the unemployment rate would end this year at 4.3%, and end next year at 4.1%, meaning the job market has already hit the milestones officials thought would take an additional year to reach.

“The Fed has to be cognizant of the fact that if we run employment at 4%, inflation could rise above their 2% target,” said Gus Faucher, economist at PNC Financial Services. “If they let unemployment get too low, they may have to raise rates more aggressively, and that risks causing a recession.”

Another risk is that financial markets overheat even as the real economy seems to be on strong and sustainable footing.

The unemployment rate was last below 4% in late 2000, just as a technology bubble was entering its last phases. A recession began in March 2001.

A broad measure of unemployment and underemployment that includes Americans stuck in part-time jobs or too discouraged to look for work ticked up to 8% in November, but remained near the lowest level since 2006. Meanwhile, the share of the population between 25 and 54 years old that has a job, 79%, touched the highest level since the recession ended in 2009.

Those figures suggest there are relatively few Americans left to be drawn off the sidelines of the labor market.

Linn Mariano, 23, thought she would need to return to school to land the professional job she desired. She holds an associate degree form a community college and was worried about the expense of more schooling.

Instead, she was accepted into the Year Up program, which provided her job training and set her up with an internship at drugmaker Pfizer Inc.’s offices in Groton, Conn. She moved from intern, to contractor, and this fall was hired on full-time as an analyst. The position came with a raise, vacation time and retirement benefits.

“This will the first time since I’ve been working I could take off Christmas week,” said Ms. Mariano, who plans to visit family in Georgia. “If you’re willing to apply yourself, there are good jobs out there, even if you don’t have a four-year degree.”

Appeared in the December 9, 2017, print edition as ‘Hiring Growth Powers Economy.’

Read online here.