Latest / The Macro Memo with Fexingo: Daily Conversations on Inflation, GDP, and Federal Reserve Policy / The Hidden Job Market Signal in Surging Part-Time Work
Transcript
- Lucas: The jobs report on Friday showed nonfarm payrolls grew by about 172,000 in May — solid, not spectacular, and the unemployment rate held at 4.3 percent. Most of the headlines focused on that headline number and the rebound in job openings we saw in the JOLTS data last week. Luna: Right — openings jumped to 7.6 million, which was way above expectations. A lot of people read that as the labor market still being tight. Lucas: Exactly. But there's a measure buried in the same Bureau of Labor Statistics report that tells a very different story — the U-6 rate, which includes unemployed people, plus those working part-time who want full-time work, plus discouraged workers who've stopped looking. That number ticked up to 8.2 percent in May. Luna: That's the broadest measure of labor underutilization. And 8.2 percent — where does that sit historically? Lucas: It's the highest since early 2022, when we were still coming out of the pandemic recovery. And the piece that's really driving it is what the BLS calls 'involuntary part-time workers' — people who are working part-time because their hours were cut or they couldn't find full-time work. That number has risen by roughly 400,000 over the past six months. Luna: So the headline jobless rate is low, but underneath, more people are stuck in part-time roles they don't want. That feels like a wage story too. Lucas: It is. And look, before we dig deeper — if walking through the economy with us has made something click for you, a handful of listeners chip in monthly at buy me a coffee dot com slash fexingo. That's literally what keeps this show ad-free and independent. No pressure at all — just a low-key heads-up that listener support is what keeps us going. Luna: Yeah, it means we don't have to chase sponsors or tailor the content to an advertiser. We just follow the data wherever it leads. Lucas: Exactly. So back to that involuntary part-time number — the BLS counts someone as involuntary part-time if they're working one to thirty-four hours a week because of economic reasons, like their employer cut hours, or they could only find part-time work. In May, that group stood at roughly 4.6 million. Luna: That's up from about 4.2 million a year ago. And it's not just a seasonal blip — it's been trending higher for months. Lucas: Right. And if you look at average weekly hours for private-sector workers, they've been drifting lower — down to 34.2 hours in May from 34.4 a year ago. That might not sound like much, but across 159 million payroll workers, that's a meaningful reduction in total labor input. Luna: So companies are cutting hours before they cut heads. That's classic 'labor hoarding' in reverse — they're not firing, but they're not giving people the hours they want either. Lucas: Exactly. And that's exactly the kind of labor market slack that the Federal Reserve pays attention to. Chair Powell has said multiple times that they're watching a broad range of indicators, not just the unemployment rate. The U-6 rate and average hours worked are part of that. Luna: And this connects directly to that New York Fed survey that came out Monday — household financial anxiety hit its highest level since July 2022. People are feeling squeezed even though the job market looks okay on paper. Lucas: Right. The survey showed that the share of households worried about their finances over the next twelve months jumped to the highest in nearly four years. And part of that is probably the disconnect between having a job — or a part-time job — and not feeling like your income is keeping up with costs. Luna: So the market sees job openings rebounding and thinks, 'Great, the Fed won't cut rates anytime soon.' But the Fed might look at involuntary part-time work and the U-6 rate and see a different picture — one where there's still slack. Lucas: That's the key tension. On one hand, average hourly earnings are still growing at about 4 percent year-over-year. That's above what most Fed officials would consider consistent with their 2 percent inflation target. On the other hand, if people are working fewer hours, their total weekly earnings aren't growing as fast. Luna: And that might be one reason we're seeing consumer sentiment so weak — real income growth is slowing when you account for both inflation and hours worked. Lucas: Precisely. The Atlanta Fed's wage tracker actually shows that wage growth for job switchers has cooled significantly — it's down to around 5 percent from a peak of nearly 8 percent in 2022. And for job stayers, it's been hovering around 4.5 percent. Combine that with fewer hours, and the average worker's weekly paycheck isn't stretching as far. Luna: So what does this mean for the Fed's next move? The fed funds rate is at 3.62 percent right now, and the market is pricing in maybe one cut by the end of the year. Lucas: Right. But if underemployment continues to rise, and if the May CPI report — which comes out Thursday — shows inflation moderating, I think the argument for a cut later this year gets stronger. The Fed doesn't want to keep rates restrictive if the labor market is softening beneath the surface. Luna: Especially because long-term unemployment is also surging — the number of people unemployed for 27 weeks or more hit 1.8 million in May, up 20 percent from a year ago. Lucas: That's a really important point. The longer people are out of work, the harder it is for them to get back in. Skills atrophy, networks fade, and eventually they might drop out of the labor force entirely. That's a structural problem, not just a cyclical one. Luna: So the hidden story in this jobs report is that the labor market is looser than the headline numbers suggest. And the Fed might be watching that more closely than the JOLTS spike. Lucas: I think that's right. The JOLTS number got all the attention, but the real signal is in the composition of employment — more part-time, fewer hours, longer unemployment spells. That's the kind of gradual softening that could tip the balance for the Fed later this summer. Luna: And it's also the kind of thing that doesn't show up in the stock market right away. The S&P 500 is down over 3 percent in the last five days, but that's more about inflation fears and tariff news than labor market nuance. Lucas: Exactly. But over time, if household financial anxiety keeps rising and underemployment stays elevated, that will feed into consumer spending, which is still the engine of the economy. And that's when the Fed really has to act. Luna: So the question is whether the June jobs report, due out in early July, will show this trend continuing — or whether it's just a temporary blip. Lucas: That's the million-dollar question. But for now, the data is pointing in one direction: beneath the calm surface, the labor market is sending a warning signal. And if you're only looking at the unemployment rate, you're missing it. Luna: Alright, we'll be watching the CPI report on Thursday and the Fed meeting next week. Thanks for listening — we'll be back tomorrow with more.