February’s jobs report will provide further reassurance to the Federal Reserve officials who claimed in the month that the economy is near full employment — but it’s not there just yet.
At 4.9 percent, the unemployment rate in February was already below where members of the Federal Reserve have projected it to be when the economy is fully healthy.
And businesses are still creating more than enough jobs to keep it trending down: Only around 78,000 jobs are needed each month to push the unemployment rate lower, according to White House economists, and the U.S. has averaged 228,000 in the past three months.
Those facts appear to vindicate recent statements from top officials in recent weeks suggesting that full employment is at hand, even as financial market turbulence and overseas weakness have raised concerns about recession risk. That view is what has prevented the Fed from calling off its plans for raising interest rates later this year.
For example, speaking at a House hearing in February, Fed Chairwoman Janet Yellen said, “The economy is in many ways close to normal in the sense that the unemployment rate has declined to levels that most of my colleagues believe are consistent with full employment in the longer run.”
Speaking at a conference in China at the end of February, Federal Reserve Bank of New York President William Dudley put the full employment rate at 4.75 — not far away.
The counterpoint is that the unemployment rate understates the problems facing many U.S. workers.
Many workers are still working part-time even though they would like to have full-time work. Others are only sporadically looking for work because they are having a tough time finding openings. Including those workers, according to the Bureau of Labor Statistics, underemployment is 9.7 percent, still well above the 7.9 percent rate it touched at the lowest point of the previous business cycle.
Furthermore, a huge chunk of the population quit the job hunt altogether, dropping out of the Bureau’s calculation of unemployment. Those quitters have helped push the labor force participation rate down from 66 percent at the start of the recession to 62.9 percent today.
Not all of that decline is because of the recession. Much of it reflects the aging of the Baby Boom generation into retirement and long-term trends toward falling participation among men and women.
Nevertheless, researchers who have tried to tease the factors behind the decline believe that a lot of it is a result of the recession, and thus reversible.
For example, the Hamilton Project, a Washington think tank, reckons that the economy is still missing over 1.7 million jobs, based on the number of unemployed workers and pre-recession trends in labor force participation rate.
And an estimate from FiveThirtyEight suggests that if the quitters were included in the calculation of the unemployment rate, the “real unemployment rate” would be closer to 6 percent.
Those missing workers and unwilling part-timers have not gone unnoticed at the Fed. In a speech in Houston in February, Fed vice Chairman Stanley Fischer cited their situation in suggesting that a “modest overshoot” in the Fed’s stimulus might be warranted, even with headline unemployment near the long-run level.
Even so, however, Friday’s report suggests that Yellen may be proved right in the call she made in April 2014, not long after taking office, when she suggested that the U.S. might reach full employment by the end of 2016.
