(Bloomberg) — President Donald Trump and Federal Reserve Chair Janet Yellen agree on at least one thing: The underemployment rate is worth watching to monitor labor-market slack, and its recent plunge is welcome news for Americans who've missed out on the jobs recovery.
Count it among the good things that don't have to come to an end, at least not soon.
While Trump called the main jobless rate "phony" throughout the election campaign, he and his administration have embraced the Labor Department's underemployment measure, which also includes part-time workers who'd prefer a full-time job and those who want a job but aren't actively looking. Yellen, for her part, hasn't ridiculed the unemployment rate, but highlights underemployment as a key gauge.
That measure, also known as U-6, is falling rapidly as employers increasingly find themselves competing for workers. Its decline to 8.6% in April capped the biggest three-month slide since 2011, and analysts reckon it will keep dropping in coming months, albeit more slowly, as the economy's projected rebound further encourages businesses to boost headcounts.
"There's a good economic reason for why this rate should continue to fall," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. With unemployment so low and wages picking up, "there's an ability, finally, to get the marginal and part-time workers in. They do see more opportunities for work, and employers do see the need to hire given the strength of the American consumer."
The rate's decline underscores the bigger picture of a job market that's surprised many analysts with its persistent gains. Employers probably added 180,000 people to payrolls last month, based on the median estimate of economists ahead of Friday's Labor Department report. That's in line with the year's average pace but more than needed to keep up with labor-force growth. The main unemployment rate is forecast to hold at 4.4%, the lowest since 2007.
Data on Thursday indicated the labor market remains healthy. Private payrolls rose by 253,000 in May, more than forecast, according to the ADP Research Institute. Applications for jobless benefits, even with an increase last week, are near the lowest level since 1973 as employers hold on to existing staff.
Gradual Hikes
Though the unemployment rate is already below what Fed officials consider sustainable in the longer run, continued progress in mopping up the remaining labor-market slack calls for policy makers to refrain from speeding up their path of gradual hikes, according to Neil Dutta, head of U.S. economics for Renaissance Macro Research LLC. Easy borrowing conditions will nurture the economy's expansion, which completes eight years this month, and underpin a healthy pace of job openings and hiring.
"Maybe we can let this run a little longer," said Dutta, who, like most analysts, expects the Fed to raise interest rates at its June 13-14 meeting. "The longer we let the labor market boom, the more you're able to get people off the sidelines."
