You know these are interesting times in the U.S. economy when itâ€™s a positive sign that the unemployment rate just went up. On Friday, the Labor Department reported that the jobless rate ticked up from 3.8 percent in May to 4.0 percent in June, but thatâ€™s good news because it reflected an increase of job seekers of approximately 600,000, drawn from the pool of previously discouraged workers. Even though employers created a healthy 213,000 new non-farm jobs, that wasnâ€™t enough to keep up with the increase in labor force participation.
When previously idle people return to, and stay in, the labor force, they can acquire new skills and enhance their capacity to take on employment in the future. Wages, too, are bound to rise, and they did so at an annual rate of 2.7 percent last month.
In short, todayâ€™s tight labor market creates a virtuous circle, and itâ€™s worth reflecting on how we got here - and what could still go wrong. President Donald Trump and the Republican Congress are eager to claim credit for the tax cut that became law six months ago; and there is some evidence that it has boosted investment and confidence. The main source of todayâ€™s robust economy, however, is the sound policy and steady hand of the Federal Reserve, led for the past four years by President Barack Obamaâ€™s choice, Chair Janet Yellen, who has been replaced by a Trump nominee, Jerome Powell.
What remains to be achieved, however, is a level of wage growth commensurate with the other indicators of labor-market tightness. Even at 2.7 percent, the current annual rate of growth in wages is moderate at best - not much higher than inflation. It reflects the fact that many new jobs are in lower-wage sectors of the economy.
The Fed is known for making its policy determinations on the basis of data. If only we could say the same for the executive and legislative branches.