A drop in the unemployment rate to a 16-year low raises a tantalizing question about the job market: How much better can it get?
Earlier this year, economists worried the low unemployment rate meant businesses would struggle to find workers and that would drag down the pace of hiring. Those fears were heightened by a tiny job gain in March and modest hiring in May.
Yet Friday’s jobs report suggests such concerns are premature. Employers added 209,000 jobs, after a solid gain of 231,000 in June, the Labor Department said. The unemployment rate ticked down to 4.3 percent, from 4.4 percent, matching the low reached in May.
The U.S. economy is benefiting from steady growth around the world, with Europe and Japan perking up and China’s economy stabilizing. Corporate revenue and profits are growing too, and the stock market has hit record highs.
Economists were particularly encouraged by more Americans coming off the sidelines and finding jobs. For the first few years after the recession, many of the unemployed stopped looking for work.
Some were discouraged by the lack of available jobs. Others returned to school or stayed home to take care of family. The government does not count those out of work as unemployed unless they are actively searching for jobs.
That trend began to reverse last year and has continued into 2017. To many economists, that means robust hiring could continue for many more months, or even years.
“There’s more people willing to work than the unemployment rate would have you believe,” said Nick Bunker, a senior policy analyst at the Washington Center for Equitable Growth, a liberal think tank.
President Donald Trump celebrated the data in a tweet shortly after the numbers were released. “Excellent Jobs Numbers,” he wrote, “and I have only just begun.”
The pace of hiring this year, while solid, is pretty much the same as it was last year under President Barack Obama. Employers have added an average of 184,000 jobs a month through July, compared with 187,000 in 2016. Monthly job gains topped 200,000 on average in 2014 and 2015.
The steady hiring is adding up. In July, the proportion of Americans aged 25 through 54 who had a job or were looking for one rose to 81.8 percent, up a half-percentage point from a year earlier and the highest since December 2010.
Economists focus on that age group because it filters out the impact of retirements by the huge baby boomer generation and excludes younger workers who are more likely to be in school.
That means more Americans are optimistic about the job market and launching job searches. But that proportion is still substantially lower than the all-time peak of 84.6 percent, reached in January 1999.
The unemployment rate fell to a three-decade low of 3.9 percent the following year, in April 2000. That represented the best of all worlds: A low unemployment rate with a lot of people working or looking for work.
Economists doubt the jobless rate can fall that low again without touching off inflation, as employers are forced to offer higher pay to attract workers from a dwindling supply of unemployed. That is why the Federal Reserve has raised short-term interest rates three times in the past seven months, which they hope will forestall future price increases.
But many economists worried the ultra-low unemployment rate in 2000 would touch off inflation, and it did not. The economy at that time benefited from much higher rates of productivity growth, which allowed employers to raise pay and hire more without having to lift prices.
There’s also no way to know whether the proportion of people working or looking for work could return to its 1999 peak. Many economists are doubtful, in part because it rose sharply in the 1980s and 1990s as women flooded the workforce. The proportion of women working or looking for work has slipped since 2000.
Based on historical trends, the share of working-age Americans who either have jobs or are looking for one could rise another 0.7 percentage points. That would create 1.8 million more jobs, according to Andrew Sojourner, an economist at the University of Minnesota.
Christopher Rugaber is an Associated Press economics writer.
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