Friday’s US unemployment rate of 4.1% was the fifth straight month at this post-Great Recession record low level of joblessness, so the logical question is “Is this as good as it gets?” We pulled some numbers from the Bureau of Labor Statistics dataset (1948 – present) for a little perspective:
Early-to-mid 2000s cycle. Compared to the prior business cycle, we are certainly at lower levels of unemployment today. The low points there were in Spring 2007 with unemployment at 4.4%.
The late 1990s cycle. You have to go back this far to find similarly low levels of US unemployment as compared to 2018. From Q4 1999 to Q4 2000, unemployment rates were all at or below the current 4.1% (15 straight months). The absolute “Best” unemployment rate for the period was in April 2000 at 3.8%.
The 1940s to the 1990s (multiple cycles). Fourth quarter 1965 to January 1970 saw monthly unemployment rates all below the current reading (51 straight months). The all-time low reading for US unemployment was in the immediate post-World War II boom at 2.5% in May/June 1953.
Naturally, there are a lot of apples and oranges in that historical track record, so we also need to unpack the current unemployment data across demographic criteria to see how much slack might still be left:
Point #1: Labor market slack by educational attainment is concentrated in workers without a 4-year college degree.
- A total of 41% of the US workforce (25 years old or more) has a 4-year college degree. The unemployment rate for this cohort is currently 2.3%. Prior cycle lows were 1.9% (2007) and 1.5% (2000), so there is room for improvement.
- At a combined 52%, workers with some college or an associates’ degree (27%) and only a high school degree (25%) are actually the largest part of the US workforce. Current unemployment rates here are 3.5% and 4.4% respectively. Like the statistics for 4-year college educated workers, these were modestly lower in prior cycles, implying room for further (if modest) improvement.
- This cohort has one important feature not shared with 4-year college grads, however: the participation rates are stable rather than falling. Workers with a BA/BS degree or higher showed a 73.7% participation rate last month, very near a low for this group going back to the start of data collection in 1982 (when it was 81.1%).
- By contrast, workers who ended their formal education at high school are as engaged with the general US workforce as they were three years ago. Yes, participation rates are lower ay 57.5% but they are not declining.
- Workers with some college/associates degrees are similarly staying in the labor force as levels consistent with the last year. Last month participation rates here were 65.5%.
Point #2: Long-term unemployment is still an important issue in US labor markets.
- The most notable feature of the Great Recession’s effect on US labor markets was not the unemployment rate. At its worst, it was 10% for one month (October 2009). The recession in the early 1980s saw +10% unemployment for almost a year, from late 1982 through 1983.
- Rather, it was the percentage of unemployed who were out of work longer than 27 weeks. This was +40% for almost three years (2010 – 2013). The early 1980s downturn only saw +20% for 18 months.
- Even now, near a notional trough for unemployment, long-term unemployment is still a chronic problem in US labor markets. Last month’s data showed that 20.7% of unemployed workers had been without a job for 27 weeks or more. Excluding the early 2000’s economic cycle, normal levels are closer to 10%.
Point #3: The broadest measure of US unemployment (U-6, which includes a broader definition of unemployed than the commonly cited U-3) shows room for improvement as well.
- Current U-6 unemployment is 8.2%, a post-Great Recession low.
- It was at similar levels for much of 2006/2007.
- The all time lows (back to 1994, when data collection started) was in April 2000, at 6.9%.
The upshot here: there is some good news and some bad news.
Good news: yes, there is still slack in the US labor market even though current unemployment rates are lower than the best months of the last cycle.The domestic economy has been able to support stronger labor markets than we have today in the not-so-distant past. It can do so again now.
Bad news: the easy part is past us. To continue to grow total employment in 2018, the US economy will have to utilize labor that doesn’t have the same educational credentials as the cohort with the lowest unemployment rate (BA/BS holders). It will also have to find ways to reengage those who have been out of the workforce for more than 6 months.
There is certainly a pathway to further strong labor US market growth in 2018 – it just isn’t the same as the route we took to get where we are.