Business Monday

Jobs report likely to say U.S. unemployment is low. But that won’t tell the whole story

A sign in the window of a Idea Coffee in New York advertises for workers.
A sign in the window of a Idea Coffee in New York advertises for workers. Sipa USA/TNS file/April 20

The U.S. job market is full. It has been at capacity for more than two years now, at least according to the notable statistic — the monthly unemployment report. And it’s likely to remain there in the week ahead.

For years, economists considered an unemployment rate of around 5 percent to signify that everyone who wanted a job in America had a job. Maybe it wasn’t the job they wanted or loved or paid enough, but it was employment. The national unemployment rate has been at or below 5 percent for 26 consecutive months. That is expected to grow to 27 months when the November data is released Friday.

“The frictions in the labor market are going down so our natural rate of unemployment should be lower,” the president of the Federal Reserve Bank of Atlanta, Raphael Bostic, told me. The Fed’s own peg is 4.8 percent. Even with that as a gauge, America’s job market has been full all year.

Yet wages aren’t jumping. Average weekly earnings are up just 2.4 percent over the past year. While wage pressures have been building, paychecks are growing much slower on average than they were a decade ago.

So what gives? Maybe it’s because American workers are aging. The unemployment rate tends to drop with age. It’s also easier to look for work. Gone are the days of filling out applications in person and needing to mail a cover letter and résumé with a stamp. Now, job searches and job applications can be done on a smartphone while on a coffee break.

The implications for investors, especially bond investors, can be significant. If the Federal Reserve lowers what it considers to be full employment, it could give the Fed more leeway in how it manages its own target interest rate. Remember, one of the two mandates for the Fed is maximizing employment.

That goal won’t change, but how full is full may.