5.5% unemployment not as great as it seems

Associated Press

WASHINGTON

Unemployment in the U.S. has dropped to a seven-year low of 5.5 percent — a level normally considered the mark of a healthy job market. Yet that number isn’t as encouraging as it might sound.

Though U.S. employers added a solid 295,000 jobs in February, and the jobless rate fell from 5.7 percent, it went down mostly because many people gave up looking for work and no longer were officially counted as unemployed, the government reported Friday. What’s more, wage gains remained sluggish.

Those trends suggest that the job market, though improving rapidly, isn’t quite as healthy as it looks.

That complicates the Federal Reserve’s task of figuring out when the economy has strengthened enough to withstand higher interest rates. The Fed is considering a rate increase as early as June.

With Friday’s report, employers now have produced 12-straight monthly job gains above 200,000. It’s the longest such stretch since 1994-95.

The U.S. easily is outshining most other major economies. For example, the unemployment rate in the 19 countries that share the euro is 11.2 percent, or twice the U.S. rate.

The robust U.S. job gains appear to have convinced many investors that the Fed will soon raise the short-term interest rate it controls. On Friday, investors sold ultra-safe U.S. Treasurys, a sign that many anticipate a rate increase. The yield on the 10-year Treasury note rose to 2.24 percent from 2.11 percent.

And they dumped stocks. The Dow Jones industrial average plummeted 276 points in afternoon trading.

A 5.5 percent unemployment rate typically is consistent with what economists call “full employment” — when the proportion of unemployed people has fallen so low that employers must raise pay to find enough qualified workers.

Companies then raise prices to pay for the higher wages. And the Fed usually follows suit by raising its benchmark short-term rate to cool growth and ward off inflation.

But the scars of the Great Recession have made the process hazier and more complicated.

“5.5 percent doesn’t mean what it once did,” said Diane Swonk, chief economist at Mesirow Financial. Full employment “is always a moving target, and it has moved down.”

Since the recession ended in June 2009, the percentage of adults working or looking for work has fallen to a 37-year low of 62.8 percent.