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#MoneyBeat There’s Still a Little Slack in the Job Market

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The unemployment rate’s expected decline to 4% is likely to be seen as evidence of the U.S. labor market’s increasing tightness.

But broader measures of employment continue to show there’s still room for people to join the workforce, suggesting that a much-anticipated acceleration in U.S. wages and inflation isn’t yet on the horizon.

The Labor Department’s monthly jobs report, to be released at 8:30 a.m, is expected to show the unemployment rate fell to 4% in March from 4.1% a month earlier. That would be the lowest level since 2000 and well below the rate of about 4.5% that the Federal Reserve thinks should prevail over the long term.

But another closely-watched measure of unemployment–the so-called underemployment rate–remains elevated in a sign that the labor market isn’t yet at full capacity.

The underemployment rate rose to 8.2% in February from 8% last year, even as the broader jobless rate held steady and hiring accelerated (To be sure, the rate has fallen sharply from levels as high as 17% after the recession).

Deutsche Bank said there are about 1.6 million marginally-attached workers–people who want a job but haven’t searched within the last month–though analysts say many won’t ultimately find jobs because the problems they face are structural, such as limited education.

Still, Deutsche Bank believes “there is some scope, albeit likely small, for remaining slack from marginally attached workers.”

As The Wall Street Journal’s Morning MoneyBeat newsletter noted on Friday, economists also point to the depressed labor force participation rate as evidence that there’s room for more workers in the job market. Labor force participation was at 63% in February, an improvement over recent months but still below a level of 66% in 2007. The participation rate for the group of workers seen as most hireable–those between 25 and 54 years old–remains about a percentage point below the pre-crisis level.

Analysts say this pool of untapped workers could be one factor holding down wage growth, as businesses aren’t yet facing a labor shortage that would encourage them to lift pay. The lack of meaningful wage growth has confounded policymakers and analysts, who had expected the falling unemployment rate to spur higher wages and prices.

Average hourly earnings are forecast to rise 0.3% in March from the prior month, continuing the modest pace of growth of the past few years and encouraging the Fed to stick to its slow-and-steady approach to raising interest rates.

“There are a couple places where it looks like there may be additional slack in the labor force,” said Federal Reserve Chairman Jerome Powell last month. “We don’t see any strong evidence yet of a decisive move up in wages.”

To receive our Morning MoneyBeat newsletter via email, click here.


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