The U.S. Still Needs 2.7 Million Jobs

More needed.

Photographer: Chris Keane/Bloomberg

If the U.S. Federal Reserve is looking for reasons to increase interest rates sooner rather than later, it won’t find many in the latest employment numbers. The economy is still millions of jobs short of where it should be.

QuickTake Monthly U.S. Jobs Report

The Labor Department's employment report for September suggests that turmoil in global financial markets may have taken a toll on the U.S. recovery. Nonfarm employers added an estimated 142,000 jobs, bringing the three-month average to 167,000 -- the slowest pace of growth since 2012. The separate household survey, which polls more than 100,000 individuals, actually shows a drop in employment: The unemployment rate held steady at 5.1 percent only because the number of people counted in the labor force also declined.

Deeper down, the report offers ample evidence of what Fed Chair Janet Yellen has called "slack" in the labor market. One indicator: The number of people stuck in part-time jobs, or not actively looking for work (and hence not counted as unemployed), remained unusually large by historical standards. If the unemployment rate included those people, it would be more than a percentage point higher:

A percentage point or two represents a lot of jobs. Accounting for all the people who want full-time work or are likely to rejoin the labor force, it would take about 2.7 million jobs to reduce the unemployment rate to 4.9 percent -- Fed officials' median estimate of full employment, the point beyond which inflation tends to accelerate. The number is down from 4.6 million a year ago, but still too high:

There's also little evidence that demand for labor is giving workers much bargaining power. U.S. auto workers, for example, are struggling to curb the share of lower-paid, entry-level jobs in their industry even as they negotiate raises. Overall, average hourly earnings for private-sector workers stood at $25.09 in September, up just 2.2 percent from a year earlier. In the decade before the 2008 recession, wage growth typically exceeded 3 percent.

Although the Fed chose last month to hold its interest-rate target near zero awhile longer, Yellen has said she expects to start removing stimulus before the end of this year. Whether or not the Fed takes the first step soon, the millions of Americans who still need jobs -- and the dearth of inflationary pressures -- offer reason to proceed with caution.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.