Last Friday, the Labor Department released employment figures for the month of May.  The numbers were somewhat disappointing.  Many economists are suggesting that these data mean that the economy is slowing down.  Some say this may be the beginning of the end of the long recovery and expansion from the last recession.

While economists expected the economy to add 180,000 jobs in May, only 75,000 were added.  And the number of jobs added in the prior months was reduced by 75,000.  That means that the 2019 monthly average is 60,000 jobs lower than it was in 2018.  Oddly, the unemployment rate remained constant at a record low 3.6%.

Many employers report difficulty finding qualified employees, which they say is holding down hiring.  While wage growth still exceeds 3% annually, the growth rate did slip a bit from the prior month.  That is not consistent with a tight labor market, where the expectation would be higher wages.

It was also reported that the number of unemployed people remained constant at 5.9 million.  Taken together, these data may suggest that some fundamental changes are occurring in the workplace.  The changes will result in an economy that can achieve 3% or higher annual growth, even if the labor force is increasing at a much lower rate.  This can be done without any increase in inflation.

Since the population is growing at less than 1% annually, and the labor force is growing by about 0.6% annually, there could be a problem filling future jobs.  A labor shortage would lead to rising wages and inflationary pressure.  But the recent weakness in the job market may be signaling the beginning of this new workplace environment.

Mostly because Congress reduced tax rates for corporations and high income–earners in 2017, there have been large amounts of new capital created.  The timing of this was perfect to reach the economic goals of a high-growth, low-inflation, and full-employment economy.

For the last decade or so, the emphasis of business has been on efficiency and improving productivity.  Dozens of Silicon Valley start-ups have developed software as a service (SAAS).  Many of these now public companies have enabled business to use the SAAS in order to increase output while hiring few or no new workers.

By making the investment in technology, firms can grow without having to add more labor.  Last month's data suggest that this may be the case.  This is true in both the service and the manufacturing sectors.

For a number of reasons, the manufacturing sector of the economy is growing.  The new manufacturing is not labor-intensive, but rather capital intensive.  That means that instead of workers on a assembly line, there are robots on the line.  Now one worker controls a number of robots, making each worker much more productive.

May's unemployment rate was 3.6%.  That is a full employment level.  For a number of reasons, the rate will not be able to go much lower than that.  Also, it appears that the higher wages and increased opportunity have not drawn a large number of discouraged workers back to the labor market.

Prior to the last recession, about 66% of adults were in the labor market.  That number dropped to under 62.3% by May 2015.  That's because a number of workers left the labor market during the severe recession and the extremely weak recovery, because of the lack of opportunity.  In May 2019, the number is 62.8%.  That means, in spite of the new opportunity and higher wages, the discouraged workers are not coming back into the labor market.

With slow population and labor market growth and with a continuing low percentage of the work force willing to work, the economy cannot depend on labor for growth.  The May job numbers seem to be saying that. 

So far, it does appear that economic growth has slowed in the second quarter of this year.  The first quarter saw a 3.2% growth rate.  It looks as though the second quarter will be less than that.  Although certainly possible, it doesn't necessarily mean that the economy will continue to slow.

The fundamentals for economic growth are still strong.  Employment is up, wages and personal income are up, corporate profits are increasing, interest rates are still relatively low, energy is reasonably priced, consumer confidence is sky-high, and trade agreements are being reached that will open foreign markets to U.S. manufacturers.

As long as productivity exceeds wage increases, labor costs will not rise.  As long as the Federal Reserve doesn't push interest rates up, more borrowing should occur.  As long as corporations have new capital to increase supply as demand grows, inflation should be kept low.

That means we can have solid economic growth with low inflation and full employment.  It appears that President Trump's policies are working and are timed perfectly.

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics.