The Federal Reserve Board has officially put an interest rate increase on the agenda for its June board meeting. But this morning, America woke up to a disturbing jobs report, revealing an economy that appears to have firmly slid into neutral. Despite the quickly tweeted headline that the unemployment rate has finally recovered to the rate it was before the start of the Great Recession (4.7 percent), today’s report fails five crucial tests in determining whether we have reached levels of full employment. Here are the grades for today’s report.
1. Jobs: Were 200,000 jobs added?
Payroll growth ground to a halt with employers only adding 38,000 jobs in May, the lowest since January 2011. It’s not just a one-month trend. In the fourth quarter of 2015, the economy added 282,000 jobs per month. Over the last three months, jobs growth has slowed dramatically to just 116,000 per month. We need to get back to a 200,000 monthly gain—growing faster than the population and able to get more Americans working.
2. Labor force participation: Did it trend upward?
The unemployment rate has been a far less dynamic job market indicator than the labor force participation rate (the percent of individuals who are working or looking for work). Last September, labor force participation rate dropped to 62.4 percent, its lowest level in nearly forty years (October 1977). It rallied from 62.4 percent to 63.0 percent by February but has fallen for two consecutive months to just 62.0 percent in May. How big a deal is this? If the labor force participation rate was what it was at the start of the last recession, there would be 9.1 million more Americans working or looking for work. Returning to the path back toward the pre-recession level of 66 percent is what we should look for in the months ahead.
3. Involuntary part-time: Are too many Americans underemployed?
There are now fewer officially unemployed people (those who have not worked even one hour per week and were actively looking for work) than at the start of the last recession (7.4 million in April 2016 v. 7.6 million in December 2007). But this masks the persistent underemployment of Americans, most closely tracked by workers who are working part-time hours but want to work full-time (also know as involuntary part-time). With low-wage, low-hour jobs leading the recovery (not to mention platforms like Uber that allow for micro-jobs), there are now 40 percent more underemployed workers now than at the start of the recession (6.4 million vs. 4.5 million). After dropping by 785,000 in 2015, underemployment has risen by 400,000 in 2016.
4. Long-term unemployment: Will less than one in five jobless workers be out of work for more than six months (twenty-seven weeks)?
Historically, the question of whether one in five unemployed workers have been unable to find work within six months of a layoff has been a distinguishing factor between a strong and weak job market. With the exception of Massachusetts and Montana, all states offer twenty-six weeks or less of unemployment benefits, and research indicates that the unemployed dramatically lower their expectations once they go past that mark. In other words, if the job market is robust, very few jobless workers should be unemployed for that long. The hangover of the Great Recession has left 25.1 percent of jobless Americans out of work for more than six months. We won’t cross below 20 percent unless we have several more months of job growth, and policy makers should not be satisfied until we do.
5. Wages: Are wages growing enough to increase prosperity?
C (Satisfactory performance ).
With inequality at record levels, Americans are long overdue for a raise. The most important indicator for working families is the average weekly earnings of nonsupervisory and production employers (the vast majority of Americans) which was $722.06 in May, up $1 per week from April. These weekly wages are growing at 2.4 percent annually, enough to exceed inflation but not enough to overheat the economy and spur inflation. Wage growth should be targeted between 3 and 4 percent—but the 2.4 percent rate is one of the few glimmers of sunshine that remain from the dark cloud heads in today’s numbers.
The overall picture reflects other indicators of flagging growth. Employers and working families are stuck, with few employees quitting their jobs, and firms hesitating to add more positions with economic growth stalling. By no means are layoffs growing (a fact underscored today and by yesterday’s report of record low jobless claims), and there is no reason to fear a recession in the coming months. But, working families want more. They want enough economic growth to give working families a much better chance to bargain with their employers for higher wages, and to give firms more incentive to hire disadvantaged Americans, young people, and the long-term unemployed.