Is America’s Headline Unemployment Rate too Optimistic?
On Friday, the U.S. Bureau of Labor Statistics will release its monthly Employment Situation report, which is the benchmark for the headline unemployment rate. Headline, or U-3, unemployment is a measure of how many members of the workforce — defined by the BLS as the set of Americans who are both eligible and willing to work — are currently without work and are actively trying to do something about it. In July, this was 11.5 million people, or 7.4 percent of the American workforce.
The health of the labor market is a top concern for every member of the U.S. economy, which is to say that it’s a top concern for everybody in the country. Labor, aptly enough, is what keeps the entire economic machine moving, and attaining “full employment” is something of a holy grail for monetary and fiscal policymakers. Seeking to satisfy that half of its dual mandate, the U.S. Federal Reserve has targeted an unemployment threshold of 6.5 percent, indicating that this is the rate at which it would become appropriate to consider tightening monetary policy — that is, raising the benchmark federal funds rate, which has been trapped at the zero bound for years.
At 6.5 percent, unemployment would be about one percentage point shy of what many economists estimate is full employment for the U.S., and the labor market would be healthy enough for the Fed to finally take its foot off the gas.