The government says unemployment fell to 4.3% in May, but here's a more realistic rate

  • The broader definition of unemployment — U6 — fell two-tenths of a point to 8.4 percent in May.
  • That was its lowest level since mid-2007.

The unemployment rate fell to 4.3 percent in May, according to the Labor Department. But relying on that one number as an indicator for the economy as a whole ignores a lot of important information just below the surface.

Each month on "Jobs Friday," the Bureau of Labor Statistics releases a slew of economic data, each point providing its own perspective on the employment situation. Economists look past that one headline number — that 4.3 percent figure, also known as the "U-3" rate — to other measures of jobs in this country.

One of those indicators is the U-6 rate, a measure of unemployment with a broader definition than the U-3 rate. In May, that figure fell two-tenths of a point to 8.4 percent, its lowest level since mid-2007.

The official unemployment rate is defined as "total unemployed, as a percent of the civilian labor force," but doesn't include a number of employment situations in which workers may find themselves. The U-6 rate is defined as all unemployed, "plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force."

In other words: the unemployed, the underemployed and the discouraged.

In the past two years, the U-3 rate has returned to the prerecession levels that economists consider full employment. The U-6 rate has seen a lot of improvement in that time, and has finally neared its historical average. The U-6's three-month drop is the biggest since 2014.

Nonfarm payrolls increased by 138,000 in May, missing consensus estimates of 185,000. Expectations were running high after private payroll firm ADP reported robust gains on Thursday. According to that report, job growth was strong among construction firms and in professional and business services.

A falling unemployment rate isn't always a good thing. The official unemployment rate only measures people who are in the workforce — that is, employed or looking for work — so a falling rate can mean fewer people in the pool looking for jobs.

That's one reason economists rely on the labor force participation rate, which measures the portion of the population that's either employed or looking. The participation rate has fallen dramatically over the past two decades, but economists disagree as to the root causes.

That figure fell in May to 62.7 percent.

As more workers find employment and the labor market tightens, you'd expect wages to rise. That's because employers should have to compete with each other for remaining employees among a reduced pool. But the pattern in wage growth is outpacing inflation and labor productivity, leading some observers to wonder why.

In May, average hourly wages were up to $26.22. Average weekly wages rose to $901.97.

According to the private-sector payroll report released Thursday, job gains were driven largely by service-industry positions like professional and business services, education and health care.

Friday's report largely echoed those numbers, with professional and business services adding 38,000 jobs in May, health care adding 24,000 and mining adding 7,000.

Still, previous months' nonfarm payroll employment figures were revised downward. The disappointing March report was revised from 79,000 jobs to 50,000. April's 211,000 reported jobs gained was revised to 174,000.