On Friday, the U.S. Bureau of Labor Statistics, or BLS, will release its “Employment Situation Summary” for the month of March. Last month, the first full month of the Trump administration, labor market trends that originated in the Obama years were maintained. Since the employment recovery began in February 2010, the U.S. economy has added nearly 16 million jobs, and the steady tightening of the labor market has finally started to deliver wage growth for workers, with wages increasing 2.8 percent over the past year. But President Donald Trump’s proposed policies threaten to undermine the foundation of economic success established over the past several years. For example, in mid-March, President Trump released his budget blueprint, which would have devasting effects on many segments of the U.S. population and would negatively affect the labor market.
In March, the Federal Reserve decided to raise interest rates—a move that requires a closer examination given indicators showing that the economy remains on a stable trajectory with little inflationary pressure. It is possible that the Federal Reserve’s decision may have been influenced by President Trump’s intent to deregulate the financial sector and significantly cut taxes for the wealthy. Over the next year, as the policy trajectory currently stands, the Fed is likely to raise rates significantly in an attempt to prevent the labor market from overheating and negatively affecting the trade deficit. The Federal Reserve meets next in early May, so updated labor market figures should be watched closely as Trump’s policies move forward and economic outlooks shift.
This column presents labor market indicators to watch in evaluating both the health of the U.S. economy and the effects of the Trump administration’s policy priorities. The headline unemployment rate—otherwise known as U-3—is the most frequently cited indicator of labor market health; however, other factors can provide a fuller picture of how the economy is performing. The employment rate, the number of people working part time for economic reasons, and the U-6 unemployment rate—all discussed below—are some of these factors. Additionally, it is important to note how each labor market indicator differs among demographics—for example, by race. Although the national unemployment rate may be low, this indicator can tell a different story for other demographic groups.
The unemployment rate is at prerecession levels, but other labor market health indicators have yet to recover fully
President Trump inherited a growing economy; however, there is still room for additional growth. Although the unemployment rate—the percentage of people actively looking for a job—is at prerecession levels, Figure 1 indicates that the employment rate—the percentage of the whole population that is employed—remains below prerecession rates, meaning that a larger percentage of people fall outside of the labor market now than in 2006. This likely indicates that many people have exited the labor market due to long-term unemployment and have not yet re-entered. It is good news that the number of long-term unemployed workers has continued to fall, but work remains to bring people back into the workforce. A recovery that reaches these workers is a key to long-term economic growth.
The number of people working only part time for economic reasons remains very high
The number of workers who are employed only part time for economic reasons—meaning that they are unable to find full-time work despite wanting it—remains high compared to prerecession levels. If workers are part-time because their hours are cut or because they cannot find a full-time job, that indicates a labor market that is less favorable for all workers. In February 2017, the number of involuntary part-time workers decreased slightly to 5.7 million, which is still significantly higher than the precrisis low of 3.9 million in April 2006.
U-3 vs. U-6
The U-3 unemployment rate, the most common unemployment measure, can underestimate those who are unable to find jobs. For example, it does not capture the people who want jobs but have given up looking for work or the people who would like full-time work but can only find part-time positions. Perhaps the most comprehensive unemployment measure, U-6 alleviates this problem by including marginally attached workers—those who have recently looked for work but are not currently looking—and part-time workers who would prefer full-time work. A low U-6 indicates that people who face greater barriers in finding employment are being pulled back into the labor market due to greater economic opportunity. U-6 is always higher than U-3, but the gap grew much larger than usual during the recession and has remained above or near prerecession records over the course of the recovery.
The unemployment rate has not recovered to prerecession rates for all demographics
The gains from the recovery have not been experienced equally among different demographics and those with historically worse labor market conditions continue to face higher unemployment rates with long-term detrimental effects. While the overall unemployment rate fell from 9.8 percent to 4.7 percent between February 2010 and February 2017, the rate for African Americans only dropped from 16.1 percent to 8.1 percent during the same time frame. Focusing on the groups whose unemployment rates continue to have room for improvement should be a benchmark for the health of the U.S. labor market overall. Expanding their opportunities in the labor market can be a source of future economic growth.
Conclusion
This employment release will provide an updated snapshot of the real economy under the Trump administration. Since the Trump administration is only in its third month and there has been little progress on the policies proposed throughout his campaign, it is unlikely that March’s data will show any drastic changes. However, as the months go on, the indicators highlighted above will be key in evaluating President Trump’s policies. In order to maintain economic growth, the new administration must take these data seriously in its decision-making. Indicators such as the U-6 unemployment rate and the employment-to-population ratio show that there is still room to grow to meet previous eras of a strong labor market.
The Federal Reserve continues to be an important force in keeping the economy growing sustainably, but monetary policy is likely to be tested by economic uncertainty under the Trump administration. There is still room for the economy to grow, but it will require proactive labor market policy based on good data in order to improve the conditions that American workers face. The importance of sound economic data to guide and evaluate policy decisions cannot be understated. President Trump should embrace such data, such as the monthly jobs report, in the coming months and years to help shape his policy proposals.
Kate Bahn is an Economist at the Center for American Progress. Annie McGrew and Gregg Gelzinis are Special Assistants for the Economic Policy team at the Center.