The economy is booming. Why isn’t job growth?
Payrolls have risen 1.6 million in the past three months and are up 1.7% this year through May, which in normal times would be impressive. But these aren’t normal times. The economy is rapidly reopening, consumers are flush with federal stimulus cash, and retail sales, factory orders and housing are all booming. Inflation-adjusted gross domestic product is up 5.3% through May this year, according to a monthly series calculated by IHS Markit .
The gap between GDP and jobs is explained by soaring output per worker. The U.S. is in the midst of a productivity boom. That is positive for wages and inflation because higher revenue can absorb increased wages without companies raising prices. It isn’t such great news for the jobs outlook if employers conclude they can meet sales goals with less hiring.
In recessions employers are typically slow to cut jobs as sales slump, which causes productivity to decline. When sales recover, they are slow to add jobs and productivity rebounds. The pandemic has broken with that pattern. Business output per hour has grown in three of the past four quarters. In the January-to-March quarter of this year, it was up 4.1% from a year earlier, the fastest in a decade.
Some of this reflects the unusual patterns of this particular downturn. The losses suffered by low productivity, low wage sectors such as leisure, hospitality and other in-person services artificially boosted average overall productivity.