Why Jobs Growth Must Slow

Is the job market slowing because global uncertainties are lapping up against American shores or is it slowing because it has to?

The Labor Department reported that the U.S. economy added 164,000 jobs last month with the unemployment rate holding at a low 3.7%. That counts as solid, with job growth right in line with the monthly average gain of 165,000 so far this year.

But last year the economy added an average of 223,000 jobs a month and, with weak overseas growth and President Trump’s various trade fights weighing on manufacturing sentiment and business investment, it is natural to worry that something might be amiss. The slowdown has been concentrated in goods-producing sectors such as manufacturing—precisely where one would expect the effects of global tremors and tariffs to take hold.

With Mr. Trump’s sudden announcement Thursday that the U.S. will impose new tariffs on Chinese goods, the risk is that job growth could slow further. Moreover, since the tariffs would affect a host of consumer products that have been so far spared, service sectors such as retailing could take a hit.

An applicant fills out a questionnaire at a job fair in Hollywood, Fla., in June.


Photo:

Wilfredo Lee/Associated Press

Yet there could be a more pedestrian reason for slowing jobs growth—that unemployment is just so low, that the population is growing so slowly and that employers are struggling to find people to hire.

Indeed, assuming the share of the population in the labor force stays constant, if the economy were to generate 164,000 jobs a month over the next year, the unemployment rate would fall to 3.1% by the end of next year. Hiring would have to slow to 110,000 jobs a month to keep the unemployment rate at the current 3.7%.

Federal Reserve policy makers’ most recent projections show that they expect the unemployment rate to end next year at 3.7% and that they believe the sustainable unemployment rate over the long haul—one that isn’t associated with the risk of economic excesses—is 4.2%. So in a sense they should be happy that job growth has lost a bit of steam and hope that it loses some more.

But considering how worried about the economy they have been acting, they will probably view any further slowdown in jobs growth as a bad thing, as opposed to a necessary one.

Write to Justin Lahart at justin.lahart@wsj.com

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