February Jobs Report: Market Remains Strong, But Bracing for Coronavirus

Dr. Bernard A. Anderson, Professor Emeritus, the Wharton School, University of Pennsylvania and Senior Economic Advisor, National Urban league

 

The last jobs report before the effects of the coronavirus outbreak are known shows no change in the unemployment rate, no change in the racial disparity, and only moderate wage growth, despite a tight labor market.

 

The strong job growth in February, 273,000, can be partially attributed to unseasonably warm winter  weather. For example, construction, real estate, and restaurants together added 107,000 new workers. Other industry growth showed the persistent growth of medical care and social assistance, the two largest sectors of the service economy.

 

The moderate wage growth remains moderate reflects little gain in productivity, a by-product of lagging business investment in plant and equipment.  This stands in contrast to wage and salary increases earlier in the year that were stimulated by state and local minimum wage increases and private sector wage increases boosted by the tight labor market. Wages most for lower-skilled and young workers: wages for 20-24-year-olds   are increasing twice as fast as for other workers.  That’s benefitting African Americans whose unemployment rate has dropped to an historic low.

 

Personal income gains also reflect increases in government transfer payments, especially social security.

 

Significantly, there was no change in unemployment racial disparity, which remains at 1.87, with Black unemployment at 5.8 percent and white unemployment at 3.1 percent.

 

The February report is the baseline for mapping the impact of the coronavirus outbreak. Employment in the leisure/hospitality and transportation industries are likely to show the largest impact  if the crisis is not soon contained. Manufacturing might be affected by interruption in the supply chain of imports for production operations. 

 

If the crisis worsens, it will weaken the economy and reduce economic growth, but the damage would have to be deep and prolonged to spark a recession.

             

If the coronavirus and its downward push on the stock market reduce consumer spending, the Q.1 growth number will undoubtedly be weak.  Indeed, if a remedy is not found soon, it could spark a sharp decline in the 2020 growth rate and possibly a recession.  Few other factors threaten steady, modest U.S. economic growth.

 

A closer look at the labor market reveals that blue collar wages are rising but many employers still can’t fill open jobs. Eighty five percent of blue-collar businesses report recruiting difficulties vs. 64 % of white-collar employers. One reason is the working age population without a college degree is shrinking as baby boomers retire and more young people enroll in college. Labor participation among 16 – 24 year olds has fallen 10 percentage points in two decades.

 

But rising wages coupled with sluggish productivity growth might crimp business profits, further reducing business investment and restraining GDP growth.   The solution to this dilemma is  a significant increase in job training, an increase in immigration, and an increase in productivity, the foundation for increases in the standard of living.