Illustration: Gabriella Turrisi/Axios
Given the pandemic distortions in our collective sense of time, 2019 may seem a decade or a month ago. Either way, the labor market is showing shades of 2019.
- But understanding the similarity – and the crucial differences between now and four years ago – is key to understanding where things go from here.
Why is this important: The peak of the longest expansion in history was 2019, with a remarkably healthy labor market and low inflation. The question now is whether the rest of 2023 can retain the former while returning to the latter.
The details: A John Wick movie sequel filling theater seats isn’t the only similarity between then and now. Consider these comparisons of 2019 versus the first three months of 2023:
- Unemployment rate: 3.7% on average in 2019, 3.5% so far in 2023
- Average hourly wage growth: 2.9% vs. 3.2% annualized
- Proportion of 25 to 54 year olds in activity: 80.0% then vs. 80.5% now (both are averages)
What they say : Federal Reserve Chairman Jerome Powell is “dying for the economy to look like it did in 2019 and today’s jobs report basically looks like a very strong 2019.” tweeted Conor Sen of Peachtree Creek Investments on Friday.
Yes, but: The differences are important too. Employment growth and labor force participation are much faster now. The labor force has grown by 588,000 people per month so far this year, compared to 125,000 per month in 2019.
- Likewise, job creation has been faster this year, averaging 345,000 per month compared to 163,000 per month in 2019.
- And more importantly, the robust job growth and stable incomes of 2019 occurred in the context of significantly lower price inflation, so this rise in wages translated into an increase in the level of life.
Between the lines: The question for the rest of the year is how these differences resolve – how, when and if inflation subsides and the rate of job creation normalizes. There are risks on both sides.
- The first is that high inflation persists, which would reduce US purchasing power and lead to further Fed tightening, with all the future difficulties that would entail.
- Or, a combination of tightening already in the system and a freeze in bank credit due to the events of the past month leads to a sharp downturn, in which the robust labor market of early 2023 gives way to something more weak.
- Fed officials’ formal projections implicitly adopt the second scenario, with the median official seeing the jobless rate increase by one percentage point to 4.5% by the end of the year.
And after: The Consumer Price Index, due out on Wednesday, is the first major reading on March inflation. Also taking on outsized importance, the employment cost index, due out on April 28, will provide a more reliable insight into the deceleration in wage growth as employment reports suggest.
The bottom line: It took a pandemic to undo the sunny economic conditions of 2019. If things get murky in 2023, it will likely be another culprit: the Fed.