Wednesday, 22 of November of 2017

Economics. Explained.  

Unemployment Rate

November 3, 2017

The unemployment rate declined 0.1% in October to 4.1% after having fallen 0.2% in September.    In October the labor force fell 765 thousand (after having jumped by 575 thousand in September).  Employment fell 484 thousand in October(after having surged by 906 thousand in September).  As a result, the number of unemployed workers fell 281 thousand in October after having dropped 331 thousand in September.

Labor force growth has picked up slightly from about 0.5% in 2015 to 0.8% as the faster pace of economic activity appears to have enticed some people who had given up looking for a job back into the labor force.

At 4.1% the unemployment rate is below the low end of the 4.5-5.0% level that the Fed considers to be full employment.  However, some have suggested that the official rate is misleading because it does not include “underemployed” workers which is true.  There are two types of “underemployed” workers.  First, there are people who have unsuccessfully sought employment for so long that they have given up looking for a job.  Second, are those workers  that currently have a part time position but indicate that they would like full time employment.  The total of these two types of underemployed workers are  “marginally attached” to the labor force.  The number of marginally attached workers has been falling quite steadily and is now roughly in line with where it was going into the recession.

Fed Chairwoman Yellen has told us we should be focusing more on the broadest measure of unemployment because it includes these underemployed individuals.  The broad rate declined 0.4% in October to 7.9% after having fallen 0.3% in September. That puts it almost exactly where it was going into the recession.  It is hard to argue that there is slack remaining in the labor market.  The broad rate of 7.9% compares to 4.1% for the official rate.

As the economy continues to expand the pace of hiring will remain steady and  both rates are going to fall.  As firms look a bit harder to find the workers they need they may have to turn to other sectors of the labor market rather than just currently unemployed workers.  They may seek younger workers, but they may have a difficult time because our youth unemployment rate is lower than it was going into the recession.

They may also look at some of their part-time workers who are reliable and have a good work ethic and offer them full-time positions.  Employers may have more success here.  The number of part time workers who say they want full time employment is still slightly higher than it was going into the recession although it is gradually declining.

In short, both rates should continue to fall in the months ahead and are already below their full-employment threshold.  In that world labor shortages are likely to become even more evident in the months ahead.  That will put upward pressure on wage rates which could, in turn, lift the inflation rate.  As a result, the Fed will continue to gradually raise the funds rate in the months ahead.

Stephen Slifer


Charleston, SC

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