The American jobs engine got off to a explosive start in the first two months of 2017 as the economy added nearly half a million new workers, but keeping the pedal to the metal will be hard to sustain.
After 238,000 people were hired in January and 235,000 in February, Wall Street looks for a deceleration in March. Job creation could fall below 200,000.
Part of the reason a slowdown is expected is because unseasonably warm weather inflated hiring earlier in the year in industries such as construction that usually experience seasonal dips in employment. Hiring usually tapers off in the following month.
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More to the point, the U.S. simply can’t keep up that kind of hiring pace nearly eight years into a economy recovery in which employment has grown by nearly 15 million jobs. Monthly job growth slowed to 187,000 in 2016 from 226,000 in 2015 and a postrecession high of 250,000 in 2014.
A plunge in unemployment rate to 4.7% from as high as 10% in late 2009 underscores the progress.
“The economy is virtually back to full employment,” said senior economist Sal Guatari of BMO Capital Markets, referring to labor market in which most people who want jobs can find one.
Virtually, but not quite.
The number of Americans who want full-time work but are stuck in part-time jobs or have given up looking, for example, is still elevated compared to precession levels. The labor market hasn’t gone completely dry.
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What’s more, companies are increasing wages by the largest amount since the mid-2000s amid a growing shortage of skilled workers in certain fields. Higher pay could also draw more workers back into the labor force or keep baby boomers trying to increase their nest eggs from retiring as soon.
“Employees are willing to pay a little extra to get what they need,” said Andrew Chamberlain, chief economist at Glassdoor, a jobs and recruiting website
A pro-business Trump administration, meanwhile, is taking steps such as rolling back regulation to give a boost to the private sector. Confidence among executives at big and small companies alike is the highest in years, and in some cases, decades.
“That’s because of the [White House] focus on taxes, regulations, infrastructure investment,” said Jay Timmons, president of the National Association of Manufacturers, in a meeting with Trump on Friday.
Against that backdrop, MFR Inc. economist Joshua Shapiro said it’s possible for the economy to continue to add about 200,000 jobs a month, perhaps for another year or two. “There are more opportunities available now.”
He’s right. A longstanding U.S. survey of consumer confidence shows that Americans rate their own prospects for getting a new job as the best in 16 years. The government’s own measure of job openings across the country is also at a record high. There’s work to be had.
The March employment report will be issued on Friday.
Aside from jobs, Wall Street will play close attention to a visit by the Chinese president just two days after the U.S. trade deficit for February is announced. Xi Jinping is slated to meet with President Donald Trump at his resort in Mar-a-Lago and the huge U.S. trade deficit will be front and center.
Trump himself has tweeted that he expects “a very difficult” meeting over the size of the U.S. trade deficit with China — about $300 billion in 2016. That represents 60% of the nation’s overall trade gap.
While better terms of trade with China would be good for U.S. jobs, a serious and lingering trade dispute could wipe out any potential gains. Millions of Americans work in export-driven industries that sells lots of goods to China.