Labor Market Strength

The US labor market has rarely been stronger.

Recent figures from the Labor Department show US businesses had a total of 6.550 million job openings in March versus 6.585 million people who were unemployed. That's a gap of only 35,000 workers. By contrast, this gap never fell below 2 million in the previous economic expansion that ended in 2007, and stood at 638,000 in January 2001, at the end of the expansion that started in mid-1991 and ran through early 2001.

Of course, these figures have to be put in context. The measure of unemployed workers doesn't include "discouraged" workers, for example, nor does it include part-time workers who say they want full-time jobs. And it's not like all the unemployed have the skill sets needed for the job openings that are available.

Still, the negligible gap between the number of job openings and the number of unemployed who are pursuing work shows that the demand for labor is intense.

Reports on jobless claims show companies are clinging to their workers. In the past four weeks, the average pace of initial jobless claims has been the lowest since 1969; meanwhile, continuing claims have averaged the lowest since 1973.

And new jobs continue to be created. In the past year, nonfarm payrolls are up an average of 190,000 per month, matching the pace of the year ending in April 2017. As a result of this continued job creation, the jobless rate has dropped to 3.9% in April, the lowest since the peak of the internet boom in 2000.

Assuming a real GDP growth rate of 3.0% this year and next, we think the jobless rate will finish 2018 at 3.7%. That would be the lowest rate since 1969.

Then, in 2019, the jobless rate should drop to 3.2%, the lowest since 1953. Beyond that, continued solid growth could realistically push the jobless rate below 3.0%.

Maybe it's optimism about the labor market that's behind President Trump's recent tick upwards in popularity and the GOP's better performance in the "generic" ballot, which measures whether potential voters are inclined to support Republicans or Democrats in House races this November. Either way, it doesn't seem like an environment that favors a tidal wave of change for the Democrats this fall. The odds of the GOP keeping the House are rising, and the GOP looks more likely to gain Senate seats than lose them.