More Americans were looking for work in June, even if they didn’t immediately find it.

The bad news in the June jobs numbers, released Friday, is also the good news.

The unemployment rate rose to 4 percent last month, from 3.8 percent, which in many contexts would be reason to worry about a softening economy. But the details of this particular jump in the jobless rate actually imply good things for the economy.

The labor force rose by 601,000 people last month, driving the proportion of the civilian adult population that is either working or looking for work up by 0.2 percentage points, to 62.9 percent.

The unemployment rate rose because not all of the people looking for work found it immediately. That implies they are ready and willing to fill the jobs that employers kept creating at a healthy rate — an additional 213,000 positions in June alone.

The month-to-month swings in the size of labor force can be large because of statistical error. So this may prove to be a random blip that is erased as more data become available.

But taken at face value, it’s a sign that the hot job market is succeeding at pulling people off the sidelines and into the work force. It’s easy to imagine people who have become disengaged from the work force who, in this tightening job market, are more likely than they were a few years ago to see help wanted signs everywhere, or to have friends and acquaintances urge them to start working.

It is the opposite of the trend from 2010 to 2012, when the unemployment rate was falling but simultaneously millions of Americans gave up even looking for work.

That’s good news because it suggests that the United States economy isn’t overheating, and that it may have yet more growth potential than has been obvious.

Combined with wage growth that is merely stable — average hourly earnings are up 2.7 percent over the last year — it implies the Federal Reserve doesn’t need to worry too much that the economy is overheating or that an outbreak of high inflation is imminent. (The downside of this, of course, is that workers aren’t seeing the kinds of rapidly rising wages you might expect in a time of low unemployment.)

In contrast with a few years ago, the economy is now close enough to full employment that the availability of workers is likely to be a binding constraint on how much more it can grow.

There are, to be simplistic, only two ways the economy can keep growing. Either employers can squeeze higher productivity out of the existing labor force, getting greater output per hour of work. Or they can find a new supply of workers.

When there is a shortage of workers and employers poach from one another, the economy tends to grow the first way, as employees shift toward higher-wage, higher-productivity companies.

The new numbers, if sustained in the data in the months ahead, suggest improvement on the second front as well. The labor force participation numbers aren’t exactly soaring to new heights — the rate was higher in February than in June.

But in June, at least, this latter effect was the more influential one. Employers have been successful at coaxing people into the work force to fill all those vacant jobs. If the trend keeps up, this economy may have more room left to grow than it had seemed.

That doesn’t mean there aren’t risks ahead, of course. A rapidly escalating trade war could cost jobs in some key industries. There have been signs of a resurgence in work force participation in the past that have then reversed themselves, including as recently as this past winter.

But with the economy in mostly sound shape, this question — of how many more people are out there who might wish to work if employers can induce them to — is one of the most crucial. And last month, at least, the numbers on this front were pointing in the right direction.

Neil Irwin is a senior economics correspondent for The Upshot. He previously wrote for The Washington Post and is the author of “The Alchemists: Three Central Bankers and a World on Fire.” @Neil_Irwin • Facebook

Source link