In April, the U.S. unemployment dipped to 3.9% for the first time since December 2000. This was down from 4.1% in March.
While that move might seem like an encouraging sign for the U.S. economy (President Trump celebrated it in a tweet), it’s not representative of a jump in hiring.
According to the household survey conducted by the Bureau of Labors Statistics, the number of employed Americans climbed by just 3,000 in April to 155,181,000. Meanwhile, the civilian labor force — which includes those who are working and those who are out of work but looking for a job — fell by 236,000 to 161,257,000.
When the civilian labor force falls — all things being equal — the unemployment rate falls as well.
With all these people leaving the labor force, the labor force participation rate ticked down to 62.8% from 62.9% in the prior month.
Elise Gould, senior economist at the Economic Policy Institute, noted that it’s discouraging that the unemployment rate fell because of a rise in the number of people out of the labor force, “not because of a surge in the number of people getting jobs.”
In a note to clients, economists at Bank of America Merrill Lynch echoed the concern that the “decline was due to ‘bad’ reasons.”
“The first drop in the unemployment rate in six months was the result of a shrinking labor forces,” said Doug Duncan, Chief Economist at Fannie Mae. “The second straight drop in the labor force participation rate was quite disappointing, as it was driven by a decline in the rate for prime-age workers.”
Duncan noted that the “one bright spot” in the April jobs report is that U-6 hit its lowest level in nearly 17 years. U-6 is the broadest measurement of labor underutilization, which determines the extent to which the economy provides opportunities to employ the population to its full potential.
The drop in the labor force wasn’t the only disappointing detail in Friday’s jobs report. Wage gains cooled off in April. Average hourly earnings climbed by just 2.6% year-over-year during the month, which was less than the 2.7% economists were expecting.
“The April jobs report was lukewarm. Wage pressures continued to be muted as the annual increase in average hourly earnings held steady for the third consecutive month,” said Duncan.