Goldman Notes Economic Statistics, Particularly Wage Growth, Might Be Getting Close To “Just Right”

Watch out for wage growth pick-up and be careful about a recession is the message from the Goldman Sachs Economic Research team. The US economy is at full employment and the US Federal Reserve is more than justified to raise interest rates so as not to fall into runaway inflation, but all statistics are not lining up on one side of the argument — not yet.

Goldman: US economy is at full employment

“On a broad range of measures, the US economy is now at full employment,” Jan Hatzius and his research team wrote in an April 28 research note titled “Out of Room.”

As headline unemployment falls below most estimates of the structural rate, the report takes a look beyond the popular statistics and notes that unemployment among the often cited “discouraged worker” is down to pre-recession lows. Further, the “somewhat elevated share of involuntary part-timers,” those who want a full-time job with benefits but cannot find one “is arguably structural.”

Looking at the employment/population ratio, which is another attempt to validate the notion of “full employment,” this level remains well below its pre-recession level, the report noted. “The gap is fully explained by a combination of population aging and declining participation of prime-age men,” pointing to a trend among prime-age men has continued for over six decades. This data point has not impeded a strong near-term wage acceleration among such workers “and therefore looks structural.”

Economic indicators seldom line up in unison, a point that Goldman recognizes:

One potential caveat is that broader measures of labor market slack have sent a more downbeat message than the headline unemployment rate U3 earlier in this recovery. And unlike U3, the broad underemployment rate U6 still stands slightly above the levels seen in late 2005. The non-U3 components of U6 are marginally attached workers (people outside the labor force who want a job, are ready to start, and have searched in the past 12 months) and involuntary part-timers (people who would like to work full time but who can either only find part-time work or are on reduced hours because of slack work or business conditions).