The stock market closed higher on Friday, riding the good news of this month’s jobs report. The S&P 500 was up 1.35 percent, the Dow Jones 1.49 percent and NASDAQ 1.17 percent.
The U.S. economy added 223,000 non-farm jobs in April, according to Friday’s report from the Bureau of Labor Statistics. The number exceeded expectation and signals brighter days ahead for an economy some feared was stalling.
The promising numbers come after last month’s report which was revised down to a mere 85,000 jobs from 126,000 jobs as first posted. Several economists chalk March’s poor performance up to a hiccup in the economy.
The unemployment rate fell a tenth of a point to 5.4 percent, the lowest level of unemployment since May 2008.
Improving weather, an end to the west-coast port strikes and an increase in construction spending are all factors behind the surge in jobs, according to Sam Bullard, senior economist at Wells Fargo in Charlotte.
He called the jobs report “encouraging” for the future, noting that increase in construction spending point to a recovering housing market, one of the markets whose collapse funneled the country into the great-recession.
The sectors that that added jobs were health care, professional and business services, and construction.
“[The report] also highlights more measured rates of growth in hiring and wages that we’re likely to see in the coming months and the coming quarter,” said Bullard.
Friday’s report eased worries that the economy was stagnating. Many compare the country’s weak first quarter GDP numbers for 2015 to last year’s weak first quarter that eventually picked up in the second quarter.
The labor force participation came in at 62.8 percent, barely changing from the three month moving average.
Kyle Leonard, a 28-year old teacher in New York, said he’s noticed that several of his friends who were either unemployed or underemployed have recently secured full-time jobs. His friends work in the museum and heritage sector.
“When there’s more confidence in the economy, business and organizations have more confidence. They feel like it could be time to expand and they feel more comfortable on bringing people on. It seems like there’s a lot more confidence right now,” said Leonard.
The long-term trend for unemployment seems to be moving in the right direction. Despite an increase in the short-term unemployed of 241,000, this month’s data shows that the number of long-term unemployed (27 weeks or more) decreased by 888,000 over the past twelve months.
The number of involuntary part time workers is down by 880,000 from a year ago.
But there’s a catch – wages have still not picked up. Average hourly earnings rose by 3 cents to $24.87 for employees on private nonfarm payrolls. Hourly wages have increased a mere 2.2 percent on a year-over-year basis.
U.S. Secretary of Labor Thomas Preez said that the wage stagnation is a piece of “unfinished business” for the U.S. economy.
“Productivity growth and wage growth no longer go hand in hand,” said Preez.
“We’ve allowed ourselves to genuflect on the altar of quarterly earnings and that forces a lot of companies to think short term instead of long term, and that’s not smart,” he added.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor and senior fellow at the Manhattan Institute for Policy Research, cited slow productivity as the main reason behind wage stagnation.
“One of the reasons we’re seeing lower productivity is because of regulations on employers, red tape. Employers can’t also do everything that they want in terms of bringing their equipment up to speed and productivity is basically caused by advances in innovation and advances in technology,” Furchtgott-Roth said.
Mass layoffs in high-wages jobs in the oil and mining industry might have more to do with wage stagnation in recent months. Employment in mining fell by 15,000 in April, with most of the job loss in support activities for mining (-10,000) and in oil and gas extraction, down 3,000, according to Friday’s report.
But thinking more long-term, the gap between the increase in jobs and the weak growth in wages may be a function of the types of jobs that are being created.
Some of the fastest-growing sectors are low-paying industries, such as retail, restaurant and hospitality.
“I can’t tell you how many people I know that look to restaurants for additional cash to make ends meet, said Patrick Balbierz, a 24-year-old sommelier at Moonshine Supper Club in New Jersey, which is currently hiring.
He said that he supported himself through college and graduate school by working at the restaurant.
“People have always seen the restaurant industry as ‘not a real career’ but spend their whole lives working and making a living from it. The taboo seems to be fading as it gets more serious and expanding, which I think is important for the industry itself,” said Balbierz.
Governor Andrew Cuomo recently called a wage board to review the minimum wage in light of national protests to raise wages for fast-food workers. In November, Alaska, Arkansas, Nebraska and South Dakota, all red-states, passed ballot initiatives to raise the minimum wage.
For Balbierz, the growth in the food and drink industry is a sign of strong consumer spending.
“You’re seeing more and more people willing to spend on craft items, and asking about what is unique, rare, or new. You didn’t see that six to eight years ago,” said Balbierz.
“Today’s jobs report confirms that we are primed for a modest rebound in the second quarter and second half of the year,” said Jack Kleinhenz, senior economist at the National Retail Federation.
How will Friday’s report impact the Federal Reserve Bank’s decision on whether or not to raise interest rates? The answer is probably not very much.
Many on Wall Street called Friday’s report the “Goldilocks” report, because it was just right for a jump in stocks. There wasn’t enough growth to spark fears of the Federal Reserve raising interest rates, which some think could depress economic activity. But there was just enough new jobs to signal a healthy U.S. economy.