September 2017 Unemployment Update

Continuing our ongoing coverage of the labor market, the September Employment Situation release from the Bureau of Labor Statistics shows return to tightening of the labor market.  The headline U-3 unemployment dropped by 0.2%, beating May’s low, as did the U-6 “underemployment” rate which dropped by 0.3%.

January August September 8-Month

Change

U-3 Unemployment Rate 4.8% 4.4% 4.2% -0.6%
U-6 Unemployment Rate 9.4% 8.6% 8.3% -1.1%
Civilian Noninstitutional Population* 254,082 255,357 255,562 +1,265
Civilian Labor Force 159,716 160,571 161,146 +1,430
Employed 152,081 153,439 154,345 +2,264
Unemployed 7,635 7,132 -503
Employment-Population Ratio 59.9% 60.1% 60.4% 0.5%
Part-time for Economic Reasons 5,840 5,255 5,122 -618
Marginally Attached to Workforce 1,752 1,548 1,569 -183
  • Discouraged Workers
532 448 421 -111
* All numbers are in thousands

The decline in unemployment is particularly surprising given that the Employment Situation included a statement that it estimated that Hurricanes Irma and Harvey making landfall in September had a net negative impact on employment (as we noted was likely last month).  Whether that was due to the timing of the disaster suppressing the effects for this collection (apparently workers who missed the week of 9/12 still count as employed, and Irma hit on 9/10) or the impacts just being too small in comparison with the rest of the economy, is unclear.  

Regardless of the impact of the hurricanes, we are still seeing negligible increases in wages, even under this tight labor market, which really puts in question the Federal Reserve’s recent interest rate increases, and stated plans to start selling off the $4.5 trillion in bonds it purchased during its Quantitative Easing programs.  Without wage increases, there’s no upward pressure on inflation, which for the last 5 years has only strayed above the Fed’s 2% target for brief periods, most recently in the immediate aftermath of the 2016 election.  While the desire to normalize Fed policy is understandable, doing so while the economy is still on a relatively low idle seems like a risk that’s hard to justify, particularly because even a spike in inflation at this point would be easily contained by a interest rate increase in response.


July 2017 Unemployment Update

Continuing our ongoing coverage of the labor market, the July Employment Situation release from the Bureau of Labor Statistics continues to suggests that the labor market has stabilized, with the tightening of the first half of the year tapering off. The headline U-3 unemployment rate recovered 0.1% to return to May’s level, and the U-6 “underemployment” rate remained unchanged at a level slightly above its May low. This consistent with the Federal Reserve’s decision to leave interest rates unchanged in July.

January June July 7-Month

Change

U-3 Unemployment Rate 4.8% 4.4% 4.3% -0.5%
U-6 Unemployment Rate 9.4% 8.6% 8.6% -0.8%
Civilian Noninstitutional Population* 254,082 254,957 255,151 +1,069
Civilian Labor Force 159,716 160,145 160,494 +778
Employed 152,081 153,168 153,513 +1,432
Unemployed 7,635 6,977 6,981 -654
Employment-Population Ratio 59.9% 60.1% 60.2% +0.3%
Part-time for Economic Reasons 5,840 5,326 5,282 -558
Marginally Attached to Workforce 1,752 1,582 1,629 -123
  • Discouraged Workers
532 514 536 +4
* All numbers are in thousands

While the general trend is stable, the loss of all improvement in the discouraged workers since the start of the year, as well as the rise in marginally attached workers is a little disturbing. However, given the typical spread between the U-3 and U-6, it’s probably appropriate to consider this noise given the otherwise positive tone of the year. As long as the Fed holds off on interest rate increases and the White House doesn’t precipitate any major economic crises by bungling the budget or debt limit processes (or declaring major trade or conventional wars), the labor market will probably remain healthy for the near future.