Last week, JPMorgan Chase analysts projected that second-quarter U.S. economic growth would reach an annualized rate of 4 percent, while the Atlanta Fed’s “GDPNow” estimate jumped to 4.8 percent. In addition, the Labor Department reported that America’s four-week moving average of continuing unemployment claims had fallen to its lowest level since December 1973.
All of which suggests that our economic fundamentals remain strong, despite yesterday's stock-market drop.
As I noted earlier this month, America has an increasingly tight labor market that’s encouraging businesses to invest in their employees. Some argue that the labor market has become excessively tight, to the point where it’s harming economic growth. I disagree, for two main reasons.
First, even though headline unemployment has fallen to an 18-year low, overall wage growth remains much slower than we would expect based on the official jobless rate alone. We should therefore be skeptical of claims that America’s economy is suffering from widespread labor shortages. As Federal Reserve Chairman Jerome Powell said last week, “Everywhere we go now, we hear about labor shortages, but where is the wage reaction?”
Second, the labor-force-participation rate among people of prime working age — i.e., those aged 25 to 54 — remains well below its 2008 level, and the participation rate among prime-age men remains lower than it was at any point in recorded history prior to the Obama years.
In other words, the labor market may contain significantly more “slack” than many people imagine.
In a letter last week to Republican Senator Chuck Grassley of Iowa, a member of the U.S. Commission on Civil Rights touted the myriad benefits of a tight labor market — and warned that creating a massive new amnesty program for illegal immigrants would jeopardize those benefits.
“A tight labor market incentivizes businesses to seek out teenagers, retirees, stay-at-home parents, former prisoners, and others, and offer them training, accommodations, higher pay, and so on to entice them into the workforce,” wrote Peter Kirsanow. “I fully understand that businesses would rather hire people who do not require training, do not have what they consider a problematic criminal record, who do not need time off or flexible schedules and who are willing to accept low pay. Too bad. Businesses have responsibilities to their fellow Americans that they do not have to citizens of other countries. When there are good times in the economy, all Americans should get the chance to share in them.”
To read Kirsanow’s whole letter, go here.