Economists Think the U.S. Economy Is At or Near Full Employment

Full employment is finally here, or at least not far away. That’s according to the vast majority of economists surveyed this month by The Wall Street Journal. Asked if the U.S. economy has reached full employment, 42% said yes and an additional 48% said no, but that it’s close. “Surveys and anecdotal conversations reveal that labor shortages are emerging across a variety of industries,” said Constance Hunter, chief economist at accounting firm KPMG. Just 9% of economists surveyed said the U.S. isn’t close to full employment. (The figures don’t add to 100% due to rounding.) The U.S. unemployment rate was 4.1% in December, remaining at its lowest level in 17 years. It has come down from a peak of 10% in the immediate aftermath of the 2007-09 recession. “Full employment” doesn’t necessarily mean every American who wants a job has one; economists use the to describe the point where unemployment can’t go lower without generating price and wage pressures. The median projection from Federal Reserve policy makers in December saw the unemployment rate’s normal level in the longer run at 4.6%. The Fed is required by law to pursue both stable prices and “maximum employment.” A number of central-bank officials in recent months have said they believe the U.S. is at or near that state. “I think we are in the vicinity of full employment,” Fed Chairwoman Janet Yellen told reporters last month. Some economists point to still-subdued price and wage growth as evidence that despite years of progress, the U.S. labor market remains far from fully healed. Average hourly earnings for private-sector workers climbed 2.5% in December from a year earlier, well below growth rates seen before the recession. The Fed’s preferred inflation index rose 1.8% in November from a year earlier, and prices excluding food and energy were up just 1.5% on the year; both measures remained below the Fed’s 2% annual target. “Until we see sustained higher growth in wages, hidden slack in the labor market remains,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness. In fact, economists have repeatedly lowered their estimates for the lowest sustainable unemployment rate in recent years as joblessness has declined without stoking strong wage gains or price increases. Back in late 2014, most Fed officials thought the normal long-run jobless rate was somewhere between 5.2% and 5.5%. But when unemployment reached that point in early 2015, they marked down their longer-run estimates. The Journal’s survey of 68 academic, business and financial economists was conducted Jan. 5-9, though not every economist answered every question. RELATED U.S. Economy Reaches Its Potential Output for First Time in Decade (Nov. 29, 2017) Full Employment Confronts Trump, Fed With Tougher Trade-Offs (May 17, 2017) Economists See U.S. on Cusp of ‘Full’ Employment, WSJ Survey Says (Oct. 8, 2015) The Fed Doesn’t Think the U.S. Economy Is at Full Employment, After All (March 18, 2015) Some Fed Officials Think the U.S. Economy Is Already at Full Employment (March 6, 2015)

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