Unemployment Drops To 3.9 Percent, Lowest In 17 Years

Unemployment Drops To 3.9 Percent, Lowest In 17 Years

The labor market saw modest growth in April, with the U.S. Bureau of Labor Statistics reporting today that the economy added 164,000 jobs last month.

The unemployment rate hit 3.9 percent in April, breaking below 4 percent for the first time since December 2000. It can drop if more people get jobs; it can also drop because fewer people are looking for work.

This signals that there's more slack in the U.S. labor market than the unemployment rate indicates.

In April, 1.4 million persons were marginally attached to the labor force, down by 172,000 from a year earlier. "Why this tightness is not feeding into greater average hourly earnings growth remains a bit of a puzzle". The change in hourly earnings varied from month to month past year, but hovered around 2.5 percent, barely keeping up with inflation. "Analysts have been expecting wages to rise more rapidly, as the number of available workers shrinks". Fortunately, this was largely the result of workers aging out of the labor market, rather than dropping out due to frustration: The employment-to-population ratio among prime age workers was 79.2 percent last month, which is quite close to its pre-recession value.

In total 236,000 people dropped out of the workforce.

In other words, the natural rate of unemployment must be much, much lower than we thought.

Barrera adds that there has not been a lot of movement when it comes to job turnover either which could negatively impact wages.

However, a significant bump in pay has yet to be seen across most industries. "Slack is getting absorbed" but "the process of that translating into faster wages has been slow". They were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.

Even with the unemployment rate drifting further below Fed officials' estimates of levels sustainable in the long run, the report didn't indicate fresh upward pressure yet on wages and inflation.

Overall, the job gains occurred in professional and business services, manufacturing, health care, and mining categories. Eight years ago, the jobless rate was 10 percent. The Fed hiked rates in March and has forecast at least two more increases for this year.

Big picture: After nearly nine years of economic expansion, one of the biggest problems companies face is finding skilled workers to fill millions of job openings.

- Jared Bernstein, who was Vice President Joe Biden's chief economist, said the report looked "more moderate than strong" and chalked up the 3.9% unemployment figure to a tick down in the labor force.

The NFIB report said 57 percent of responding small businesses said they were hiring or planning to hire in April, up from 53 percent in March.