The U.S. labor market looks relatively healthy by its headline unemployment rate, but a broader measure of joblessness points to deeper weakness among workers, according to a new analysis reported by CBS News.
The unemployment rate fell to 4.1% in July, a level generally considered healthy. But the measure only counts people who are without a job and actively looking for one, leaving out some workers facing other forms of economic hardship.
Alternative measure puts functional unemployment at 24.9%
The Ludwig Institute for Shared Economic Prosperity (LISEP) uses its True Rate of Unemployment (TRU) to include workers it considers “functionally unemployed.” The measure counts unemployed workers along with people involuntarily working part time and workers earning less than $26,000 a year before taxes.
LISEP’s measure reached 24.9% in July, marking its fourth consecutive monthly increase. It remains below the 25.2% recorded in December.
LISEP Chairman Gene Ludwig said the combination of rising functional unemployment and declining workforce participation could indicate that the labor market is weakening even as the headline unemployment rate remains low.
Hiring and wage growth are losing momentum
Other indicators are also pointing to some cooling. Employers unexpectedly cut 23,000 jobs in July, falling short of economists’ expectations.
Wage growth is also trailing inflation. The Consumer Price Index rose 3.4% year over year in July, while wages increased 3.2%, meaning pay was not keeping pace with consumer prices.
Consumer spending accounts for roughly two-thirds of U.S. economic activity, so weaker real income growth can leave households with less money to spend and put additional pressure on the economy.
