July 7 (Bloomberg) -- A surge in part-time employment that was behind last month’s drop in the U.S. jobless rate takes little away from the overall picture of steady progress in the labor markets, economists say.
The Bureau of Labor Statistics’ survey of households showed the number of people working part time for economic reasons rose in June by the most in a year. Some 275,000 more Americans worked less than 35 hours a week because they were unable to find full-time jobs or their hours were cut back.
Swings in the data aren’t unusual. Last month’s increase in part-timers followed a 196,000 slump in May. What’s more, there are about a quarter million fewer Americans working part time for economic reasons than at the end of 2013 and a million more with full-time jobs.
“Since late last year, there was a turn in labor market dynamics in favor of full-time employment,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York. “The underlying message is, the labor market recovery is well and truly on its way.”
Changes in part-time employment go into assessing underemployment, one of the measures of labor-market progress being watched by Federal Reserve Chair Janet Yellen. The broadest measure of joblessness, which also takes into account those too discouraged to look for work and those wanting full- time jobs, was 12.1 percent in June. That’s about double the main unemployment rate, which fell in June to 6.1 percent, the lowest in almost six years.
Progress toward more full-time employment is still slow. The number of Americans putting in 35 hours or more as a share of the total number of employed was 80.8 percent in June. While that’s up from a low of 79.9 percent in February 2010, the share is still well below the 83.1 percent in December 2007, when the recession began.
That helps explain why hours worked and wage gains remain limited. The average workweek in June was 34.5 hours for a fourth straight month, while the year-over-year increase in average hourly earnings was 2 percent, matching the average since 2009.
“Labor market slack is diminishing, albeit slowly,” Bricklin Dwyer, an economist at BNP Paribas in New York, said in a note to clients. “While progress is being made in getting people back to work, the jobs created continue to be of lower quality, with employees working fewer hours than they desire for lower wages.”
That suggests the Fed can stick to its strategy of gradually reducing monthly bond purchases, a stimulus policy known as quantitative easing, while keeping borrowing costs low until the second half of next year, said Dana Peterson, an economist at Citigroup Global Markets Inc. in New York.
“The improvement in the labor market shows that economic slack is being absorbed without stoking inflation,” Peterson said in a research note. “The data signal that the Fed likely will remain on cruise control with regard to tapering of QE, and likely will not raise rates until September 2015.”