Is U.S. Approaching Full Employment?

Popular Economics Weekly

Are we approaching full employment will be the debate raging within the Federal Reserve and beyond this year. That’s because, “Total nonfarm payroll employment rose by 215,000 in March, and the unemployment rate was little changed at 5.0 percent,” the U.S. Bureau of Labor Statistics reported today. “Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining, only.”

It does look like the U.S. is approaching full employment, the holy grail of most economists and the Fed’s overriding mandate? This is even though the unemployment rate rose a notch to 5 percent from 4.9 percent. But it was because more Americans joined the labor force, said the Labor Department. The size of the labor force has increased by 2 million people in the past five months, a clear sign that jobs are easier to find.

Those new workers and job seekers, particularly since last fall, pushed the so-called labor force participation rate up to 63 percent. That’s the highest level in two years, reversing at least for now a sharp decline that kicked in after the onset of the Great Recession, said the Bureau of Labor Statistics.

Graph: Marketwatch

And this is with the mini job-recession in the energy and manufacturing sectors that lost 12,000 and 29,000 jobs, respectively. The household survey measure of employment shows a very good 246,000 gain in March, it is just that the labor force increased by an even bigger 396,000. That means the labor force has now increased by more than two million in the past five months alone. The participation rate has jumped from a low of 62. percent last September to a two-year high of 63.0 percent this March.

“This is a remarkable turnaround in terms of both its speed and magnitude,” said Marketwatch’s Jeff Bartash.

And the manufacturing drop may be temporary as its component of the industrial production report posted a surprising 2 tenths gain in February last week, which came on top of January's ‘stunning’ gain of 0.5 percent.

In fact, the March just released ISM Manufacturing Report showed a big surge in ISM new orders, which is certain to shake up what has been a very downbeat outlook for the manufacturing sector, said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®).

"The March PMI^® registered 51.8 percent, an increase of 2.3 percentage points from the February reading of 49.5 percent. The New Orders Index registered 58.3 percent, an increase of 6.8 percentage points from the February reading of 51.5 percent. The Production Index registered 55.3 percent, 2.5 percentage points higher than the February reading of 52.8 percent.”
“Manufacturing registered growth in March for the first time since August 2015, as 12 of our 18 industries reported sector growth, and 13 of our 18 industries reported an increase in new orders in March,” said Holcomb.

Then what will full employment actually look like? Even In March, 1.7 million persons were marginally attached to the labor force, says the Labor Department, down by 335,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

But, the number of persons employed part time for economic reasons (also referred to as involuntary part-time workers) was about unchanged in March at 6.1 million and has shown little movement since November. These individuals, who would have preferred full-time employment, were working part-time because their hours had been cut back or because they were unable to find a full-time job.

So, eh, we are approaching full employment, but are still not there. Our Fed Chairwoman Janet is right. Let’s allow more of those part timers, and marginally attached folks to find work that can fully support them and their families, before the Fed tightens the credit screws any further.

Harlan Green © 2016

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