US Economy – Dangerously Close to Full Employment

More than a decade has passed and the US economy is said to be back at full employment

Mark Zandi, who is the chief economist at Moody’s Analytics, mentioned that 4.4% unemployment rate is far from being bad news for workers’ wages. However, everyone must keep in mind that labor shortages are going to make it more difficult for businesses to find employees that are skilled and qualified.

“With the economy at full employment and seeming destined to blow past it, the current expansion is likely entering its later stages. An overheating economy, where tight labor markets result in significant wage and price pressures, has been a necessary condition for all past recessions.” – Zandi said.

Moreover, he added that the US economy is definitely heading into an overheating direction. He also added that the lingering frustration that came along with the economic recovery from the recession (2007) and the financial crisis that followed that year is exactly what has lead to the election of President Trump.

Another important indicator, the unemployment rate, has fallen to the value of 8.6%.

At the same time, the number of people who work part time and want more hours is high. However, that most probably reflects the aftermath of Obamacare, as it encourages small businesses to hire more part-timers in order to avoid health insurance mandate.

Even though the labor market has improved significantly, companies still face a tough time in recruiting 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.

Furthermore, average hourly earnings are growing at almost 3% rate, but there is still plenty of space 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.