Despite Strong Job Growth & Low Unemployment Racial Disparities Persist

In his monthly economic outlook statement, National Urban League Chief Economic Advisor Dr. Bernard Anderson cautioned that continuing economic growth is not benefiting the nation equally.

“Despite strong job growth and the tightening labor market, racial disparities in employment persist, a point repeatedly made by Federal Reserve chairman Jerome Powell in Congressional testimony on monetary policy,” Dr. Anderson said. “Also, the employment population ratio in rural communities remains markedly lower than that in urban communities.  That is further evidence of the uneven impact of economic growth on different population groups throughout the country.”

Dr. Anderson also warned that the strength of continued economic growth will be influenced by the nation’s soaring trade deficit, which has widened to nearly 18% since the fourth quarter of 2016.

Dr. Anderson’s full statement follows:

Economic growth was strong in 2018, and unemployment and inflation remained close to the Federal Reserve’s goal of maximum employment and   stable prices - - - the dual mandate.  GDP rose near 3.0% in 2018, following a 2.5% increase in 2017.   

 Last year’s growth was led by strong consumer spending and  an increase in business investment, both stimulated by the 2017 tax cut that boosted household income and deeply cut corporate tax rates.

Monthly job gains averaged 223,000 in 2018, and payroll employment increased by 304,000 in January.  The unemployment rate stood at 4.0% in January, very low by historical standards. Job openings significantly exceeded hiring, reflecting widespread skill shortages. Labor force competition and the strong demand for labor helped spur strong wage gains, though real wages, i.e. money wages adjusted for inflation remain lower than at previous low levels of unemployment.  There is no evidence of wage/push inflation.

Despite strong job growth and the tightening labor market, racial disparities in employment persist, a point repeatedly made by Federal Reserve chairman Jerome Powell in Congressional testimony on monetary policy. Also, the employment population ratio in rural communities remains markedly lower than that in urban communities. That is further evidence of the uneven impact of economic growth on different population groups throughout the country.

Different industries are also growing at a different pace. Nonmanufacturing grew strongly in February, at 3.0%.  Only retail trade reported a decline in sales, perhaps influenced by the government shutdown.

New house sales rose by 3.7%, while home prices declined by 7.2%.  There   was a huge increase in home sales in the Northeast, but a sharp drop in the Midwest. Sales rose solidly in the south but were up minimally in the West. The decline in sales prices suggests weakness in the sustainability of growth in the housing market.

The strength of continued economic growth will be influenced by the worsening trade deficit, which is soaring.  Since the fourth quarter of 2016, the trade deficit has widened to nearly 18%.  Exports are up nearly 6 %, but imports rose faster.  

Imports from China totaled nearly $540 billion, compared with $ 120 billion in exports. That’s why successful trade negotiations with China are essential for reducing the U.S. trade deficit, and stabilizing future U.S. growth.

But the trade deficit is also large with the E.U., Canada, Germany, and  OPEC nations.  U.S. imports are bolstering a large part of economic growth in other countries.

Looking ahead, the increase in payroll employment in February, to be reported on March 8, is likely to come in well below the number reported for January, which is likely to be revised downward.  Still, the labor market remains strong, and the economy on a steady, upward pace. The jobs number will have a major impact on the Federal Reserve’s thinking about when and how much to raise interest rates in 2019.