Is this the too good to be true economy?

Everything is firing for an economy and jobs market that continues to defy expectations. Photo / Getty Images

The US economy again defied expectations in April, as another month of strong hiring and falling unemployment forced experts to reevaluate just how good the economy can get - and how long the current expansion can last.

Employers added 263,000 new jobs last month, a record 103 straight months of job growth, and the official unemployment rate fell to 3.6 per cent, the lowest since 1969, the Labour Department reported Friday.

The latest piece of good news comes accompanied by strong wage growth, hot stock markets and a first quarter growth report last week that smashed expectations. But equally noteworthy is what economists aren't seeing: the high levels of inflation that have accompanied previous expansions.

As the economy continues to grow past what many predicted was possible, some analysts and officials are wondering if the current state of the economy is too good to be true - and that experts must be missing warning signs.

Some expressed concerns about rising debt after the Trump administration undertook heavy borrowing to fund tax cuts and additional government spending to boost growth. President Trump is actively pushing for more, including a US$2 trillion infrastructure package, additional military spending and extra stimulus from the Federal Reserve.

But few, if any, deny the remarkable overall strength of the US economy.

"Spectacular is the only way to describe this jobs report," said Sung Won Sohn, an economist at Loyola Marymount University and SS Economics. "It is hard to believe that this 10-year old recovery keeps pumping out home-runs."

Previous eras of such economic perfomance ended painfully. The prosperity of the 1960s was followed by runaway inflation in the 1970s; the long expansion of the 1990s burst along with the tech bubble, and the 2000s ended when a collapsing house bubble spiralled into a global financial crisis and the worst recession in generations.

But so far, during this era of growth, inflation has remained subdued and most think financial market risks are manageable.

In July, the economy's expansion is set to become the longest in US history, breaking the record from the 1990s. The widespread expectation was that hiring would slow at this point in the business cycle. But companies keep adding people with sizable gains lately for women and some minorities. Hispanic-American unemployment fell to 4.2 per cent in April, the lowest on record. Women's unemployment is now at 3.4 per cent, the lowest since 1953 and .3 percentage points lower than the rate for men.

While there are some signs of slowing - job growth this year is averaging 205,000 a month, down from 223,000 last year - the pace remains well above forecasts. And the abundance of "we're hiring" signs and online job postings is luring people who weren't necessarily looking for a job back into the labour market.

Average hourly earnings rose 3.2 per cent in the past year, well above inflation. Lower wage workers enjoyed some of the largest gains as companies scrambled to fill jobs and many states have raised their minimum wage.

How long the good times can last is a widely-debated topic from the White House to Wall Street to corner stores.

"Can this economy be sustained or get better? The short answer is: we don't know. It depends what happens with productivity growth," said Joseph LaVorgna, chief economist for the Americas at Natixis, an investment bank.

Right now the vital signs look solid. Much of US economic growth is driven by consumer spending and people are expected to keep spending given that jobs are plentiful, wages are rising for many, and optimism about the economy is back at the highest levels since about 2000, according to Gallup polls.

"Expansions don't simply die of old age. Something has to knock us away from full employment," said Christina Romer, an economics professor at the University of California Berkeley and the former head of Obama's Council of Economic Advisers. "Right now the US economy appears to be relatively stable."

Numerous economists told The Washington Post that the most encouraging economic news this week was actually productivity, not jobs. Productivity - a measure of how much a worker can make in an hour - grew above expectations at 2.4 per cent in the first quarter compared to a year earlier, the best rate since 2010.

Productivity growth was anemic during the expansion over the past ten years, with little sign of an uptick. Economists say a productivity rate above 2 per cent should fuel strong growth and higher wages. But this critical metric is notoriously difficult to predict.

"You have to give the White House some credit on the productivity front. There's been a clear change there," said Doug Holtz-Eakin, an economist who advised John McCain's presidential campaign. "It's very encouraging, but you can't celebrate too soon."

The White House cheered the news as evidence Trump's policies are working. At the same time, Trump continues to call for more stimulus, a highly unusual move at a time when the economy appears strong.

"We are the envy of the world - and the best is yet to come!" Trump tweeted Friday.

The president's victory laps comes three days after he called on the Federal Reserve to cut interest rates and buy more government bonds, policies that are typically used only during economic and financial crises.

Fed Chair Jerome Powell left interest rates unchanged this week and showed little sign of wanting to move them any time soon, opting to wait and see what happens with the economy before taking any further action.

One of the conundrums of this current economy is why inflation remains so low. Economic theory suggests that now that the unemployment rate has been at or below 4 per cent for more than a year, wages should rise at a more rapid clip and that should force businesses to lift the price of goods in order to afford the extra pay. But that's not happening yet.

"There's just not a lot of inflationary pressure despite the really low unemployment rate," said Susan Houseman, an economist and vice president of the W.E. Upjohn Institute for Employment Research.

Hiring has been strong this year across just about every sector but retail and manufacturing. Companies even continue adding temporary employees, who are often the first to get the ax at early signs of trouble.

Recessions are tricky to forecast, leading some economists to argue that a better question to ask right now is how to ensure this economy helps as many people as possible while times are good.

"The unemployment rate isn't 3.6 per cent for everybody," said William Rodgers, chief economist at the Heldrich Center for Workforce Development at Rutgers University. "I hope the president and his team don't think this is the best that we can do, especially for minority youth."