The BLS released the Employment Situation report for April. Payroll employment rebounded, adding 211 thousand, after an unexpectedly soft March, a gain of only 79 thousand. Monthly gains have averaged 185 thousand in the first four months of 2017 compared to 187 thousand in all of 2016.
The unemployment rate slipped to 4.4% based on a gain of 156 thousand employed persons that outpaced a substandard gain in the labor force of 12 thousand.
An alternative measure of labor utilization, the U-6 unemployment rate which includes involuntary part time workers and those marginally attached to the labor force (those who have looked for work in the last twelve months, but not the last four weeks) fell to 8.6%, down from 9.7% one year ago.
At 4.4% the official unemployment rate is below what most economists consider “normal” in a healthy, dynamic labor market, roughly 5%. At a 5% unemployment rate 95% of people who want jobs have them, while the other 5% are more likely between jobs, rather than locked out of employment.
At 8.6% the U-6 rate is still above its level during the healthiest economic times (<8%) but recent declines represent progress in reducing the “hidden” labor underutilization and bring the spread between the official rate and the U-6 rate to 4.2%. The strongest growth in average hourly earnings (3.5%-4.0%) has occurred when the official rate was below 5.0% and the spread was between 3% and 4%. In April, the twelve month change in average hourly earnings slipped to 2.5% from a peak of 2.9% in December supporting the argument that despite the official 4.4%, some slack still remains in the labor market.
The payroll gains are likely to be well received at the Federal Reserve where weak first quarter GDP growth and a soft March labor market report were likely discussed at the Federal Open Market Committee’s May meeting (FOMC). A quick rebound in job growth reaffirms confidence in the state of the economy and confidence in the wisdom of accelerating the pace of monetary policy normalization.