As news headlines have recently pointed out, May’s employment report reflected the continued strength of the U.S. labor market.
223,000 non-farm jobs were added, above the consensus estimate of 190,000 and April’s gain of 159,000. So far this year, the economy is averaging 207,000 new jobs a month — above the monthly average for both 2016 and 2017. The national unemployment rate fell from 3.9 percent to 3.8 percent, an 18-year low. By next year, the rate is expected to decline to a 50-year low of just 3.6 percent.
But the headline employment numbers, impressive as they are, belie the true accomplishments of the U.S. labor market. To unlock this insight, we look to the U-6 unemployment rate.
The U-6 rate is released in the U.S. Department of Labor’s monthly Employment Report, along with the U-3 rate, the official headline unemployment rate we traditionally follow. For example, the U-3 rate for May was 3.8 percent. The U-3 tracks the traditional unemployed — those who are jobless, actively seeking work and available to take a job.
The U-6 rate, however, reveals a broader measure on the nation’s unemployment rate and provides a more accurate assessment of the pulse of the employment situation. In calculating the U-6, the traditional unemployed are included, but also those who have quit looking for a job and part-time workers seeking full-time employment. In other words, the U-6 rate consists of the unemployed, the discouraged and the underemployed.
In May, the U-6 unemployment rate fell from 7.8 percent to 7.6 percent, the lowest since May 2001. For perspective, in January 2017, the U-6 rate was 9.4 percent and in the aftermath of the 2007-2009 recession reached as high as 17.1 percent.
Embedded within the U-6 rate is an oft-overlooked category that represents underemployed workers, called “Part-Time for Economic Reasons.” These people work part-time, but not by choice. They are workers who are 16 years and over who work less that 35 hours a week but who are looking for full-time employment. However, because of business conditions, seasonal declines or the simple inability to find full-time work, they remain part-time.
But in the last 12 months, the number of underemployed workers has decreased by 320,000, including May’s decline of 37,000. Their number currently stands at 4.95 million, the lowest level in more than 10 years.
The absolute strength of the labor market was further evidenced in the latest Job Openings and Labor Turnover Survey. This report, released each month by the Department of Labor, tracks the monthly change in job openings. In April, there were 6.7 million job openings across the country, which exceeded the 6.35 million Americans listed as unemployed that month. Since the Department of Labor started tracking this data back in 2000, both March and April are the only months in recorded history where the number of job openings was greater than the number of unemployed.
Despite its continuing surge, the labor market does face some potential challenges. The ongoing trade dispute with China may escalate. Increased tensions and threats of retaliatory tariffs from Canada, Mexico and the European Union must now be considered. Also, rising interest rates and energy prices have added further pressure on American businesses, who’s resulting cost-cutting measures may start to include wage and job restrictions. But for now, the strength of the U.S. labor market remains unleashed, and with it, the continued growth of the American economy.