Full employment may be redefined as Trump attacks benchmark

[WASHINGTON] Just as the US nears full employment based on the principal measure used for almost eight decades, President Donald Trump and his team are looking at new yardsticks.

The jobless rate probably held in January at 4.7 per cent, according to the median estimate from economists ahead of Friday's Labour Department report. Federal Reserve policy makers see such a level - which is down from a post-recession high of 10 per cent in 2009 - as being at or near full employment, meaning anything lower would push inflation higher.

While the rate's use as a chief indicator dates to the Depression era, Mr Trump spent last year's election campaign calling the measure "phony" and arguing it overstates the strength of the labor market.

More recently, his Treasury secretary nominee, Steven Mnuchin, said the number has "excessive influence" over policy and that it fails to account for people who have dropped out of the labor force or aren't actively looking for work.

White House spokesman Sean Spicer said Mr Trump's economic team will look at a "multitude of statistics" in assessing labour-market strength.

Mr Trump's officials actually share common ground with Fed Chair Janet Yellen on their support for reviewing a range of labour-market indicators. Ms Yellen has argued in the past that the jobless rate didn't capture slack evident elsewhere, as the Fed kept interest rates near zero until late 2015.

She's pointed to low levels of labour-force participation and the large number of part-time workers who would prefer full-time employment.

Fed policy makers indicated in their post-meeting statement Wednesday that there's still room for improvement in the job market. While the unemployment rate "stayed near its recent low" in December, "some further strengthening" is expected in labor conditions.

Comparable Rates

That doesn't mean central bankers or Labour Department economists are about to abandon the unemployment rate as their main gauge. That figure is the "number that's most comparable over time and one that's most comparable internationally," said former Bureau of Labour Statistics Commissioner Erica Groshen, who left the government last month at the end of her four-year term as President Barack Obama's appointee to the post.

Mr Mnuchin, in written responses to senators' questions following his confirmation hearing last month, cited the so-called U-5 rate as an alternative indicator. That rate, which stood at 5.7 per cent in December, includes discouraged workers as well as a group called marginally attached workers, who aren't working or actively looking for work but want a job. Another measure, the U-6 or underemployment rate, was 9.2 per cent in December. It also includes part-time employees who want full-time work.

"People change their minds about whether they're discouraged," said Ms Groshen, who was previously a Fed economist.

"We've been measuring the unemployment rate the same way since the 1940s. Most other countries that have an unemployment rate use a definition that's similar to ours - partly because we created it and because it works."

While other measures can help give a more nuanced view of the labour market, they don't go back as far, Ms Groshen said.

Changing the target unemployment rate "would just say to me that you're confused, that you don't know what you're aiming for," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Payrolls, Wages

Friday's report is projected to show a steadily improving labour market, according to economists' estimates. Employers probably added 175,000 workers to payrolls in January, an improvement from December, while average hourly wages probably rose 2.8 per cent from a year earlier, compared with the 2.5 per cent rise in Jan 2016.

The January payroll figures will include the annual benchmark update, which aligns employment data with state unemployment-benefit tax records.

Mr Trump's skepticism was part of his message that helped him win the 2016 election. The president is "absolutely right in saying that the labour market has much more slack in it than the Fed and other commentators are thinking about," David Blanchflower, a Dartmouth College economics professor and former Bank of England policy maker, said on Bloomberg Television.

"Millions of people voted for Trump saying there are no decent jobs out there and nothing much is changing."

US efforts to define and measure unemployment stemmed from the Great Depression, when about 13 million people were out of work, amounting to a 25 per cent jobless rate. But no one knew these figures at the time or whether they were improving or deteriorating, according to a 2009 paper by BLS economist Steven Haugen.

Researchers devised the methodology, and the monthly employment report began in 1940, based on a regular sample survey of the population. That practice continues today, with about 60,000 US households surveyed each month by the Census Bureau. Payroll figures come from a separate survey of businesses and government agencies.

Since 1940, there have been various reviews of the concept and definition of unemployment, which have resulted only in minor revisions to the official measure, Mr Haugen wrote.

A range of alternative metrics, including the U-5 and U-6 rates, were developed in the 1970s. Such measures now show that the "labour market is tightening," said Neil Dutta, head of US economics at Renaissance Macro Research LLC in New York.

Political Influence

While the BLS commissioner participates in the drafting of the monthly employment release and approves it, other political appointees aren't involved, and long-standing guidelines are aimed at avoiding the politicisation of the reports, Ms Groshen said. Mr Trump hasn't named a new BLS chief yet. The position is subject to Senate confirmation.

If the focus is placed on a rate that measures unemployment differently, what would matter is that "you use it consistently over time, both backwards and forward," said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.

Among people out of the workforce, "it's hard to know how many are legitimately would-be employees," Mr Hoffman said.

Still, "there are people on the sidelines that could come back in, who keep the labour market from being all that tight."

"The spigot keeps twisting a little tighter, but it's not bone-dry," he said.

BLOOMBERG