US economy at full employment, economist says

The U.S. economy is back at full employment after more than a decade, according to a leading economist.

Mark Zandi, chief economist at Moody’s Analytics, said the 4.4 percent unemployment rate is good news for workers’ wages while acknowledging that labor shortages will make it more difficult for businesses to find qualified employees.

{mosads}“With the economy at full employment and seeming destined to blow past it, the current expansion is likely entering its later stages,” Zandi said in a analysis.

“An overheating economy, where tight labor markets result in significant wage and price pressures, has been a necessary condition for all past recessions,” he said.

“Not that the current economy is overheating, but all the trend lines suggest that it is headed in that direction.”

Amid the growing economy, lingering frustration around the long economic recovery from the recession in 2007 and the financial crisis the following year is what led to the election of President Trump, Zandi said. 

“Since most people set their expectations based on their recent experiences, many believe their financial future is a dark one,” he said. 

“They are upset and want a change. What kind of change is not particularly relevant, since it is clear to them the status quo has failed. Thus, President Trump.”

Another indicator, the underemployment rate, which has fallen to 8.6 percent, is also below the threshold consistent with full employment.

The broad measure includes part-timers who want to work more and those who have stopped looking for work but say they would take a job if they could find a suitable one.

The number of part-timers who want more hours is still elevated, but that probably reflects the effects of of Obamacare, which encourages small businesses to use more part-timers to avoid the health insurance mandate, and the fast-growing gig economy.

Despite the labor market’s improvement, businesses face a tough time in finding people. 

“A full-employment economy feels great after years of high unemployment, but for businesses it means an increasingly difficult time finding qualified workers,” Zandi said. 

The problem is already evident with a nearly record number of job openings and businesses saying that a lack of labor is one of the biggest issues they’re facing.

A labor shortage could be further exacerbated by the Trump administration’s immigration’s policies, which are already hampering the home building industry.

“Labor shortages have already begun to impede growth,” he said.  

And while a tight labor market inevitably boosts wage growth, so far salaries are only increasing at subpar levels by historical standards.

Average hourly earnings are now growing at closer to a 3 percent rate but still have plenty of room to expand. 

“Given how long it has been since employees have had the upper hand in negotiations with their employers, it will take more time for labor to feel emboldened enough to demand bigger pay increases,” Zandi said.