Have We Reached Full Employment?

Economists believe the Great Recession ended in 2009, and since that time, millions of Americans are back to work. Economists and Fed policy makers agree that the economy is closer than ever to full employment in this economic cycle. Full employment doesn’t necessarily mean that every worker in the labor force is employed. Rather, economists define full employment as the point where unemployment has fallen to the lowest possible level while keeping wages and prices stable.  Earlier in the recovery, market pundits stated full employment would be reached when the U.S. was at a 5% unemployment rate. Yet, in May, we had an unemployment rate of 3.8%.  Is this a sign that higher inflation is in store? Or is full employment a smaller number than economists estimated?

To complicate matters of full employment, overtime for non-management employees is steadily rising. The demand for overtime workers increases when the availability of new skilled labor is absent. In other words, companies throughout the country have been asking their existing employees to work longer hours as the search for additional skilled labor continues.  The Labor Department reported approximately 6.6 million jobs open and unfilled at the end of March 2018.

Economists and Fed policy makers are at odds about how close the economy is to full employment when inflation concerns arise. To stave off inflation, some are suggesting short-term interest rates should rise again soon, yet others think that rates should be held lower as inflation is still below the Fed’s target. While there is pressure on increased overtime, wages are showing very little signs of rising. The real concern is that policy makers will not know what full employment means until inflation has taken hold. Stay tuned.

Unemployment Rates – Labor Statistics