On its face, it seems like an oxymoron that only an economist could love: The job market has actually exceeded the level of "full employment," which sounds like there are more people working than there are jobs.
However, that's exactly the heights where some feel the economy is at this point. At 4.3 percent the unemployment rate has gone well below where anyone expected it and is likely to improve only modestly if at all from here.
"Our findings suggest that the labor market has already slightly overshot full employment," Goldman Sachs economist Daan Struyven said in a report for clients.
While the statement may sound somewhat illogical, the implications are important.
The Federal Reserve watches the employment rate closely for clues about the broader economy. If Goldman is correct and the job market is running ahead of capacity, it has important ramifications for policy.
"The job market is now slightly beyond full employment and any further job overshoot is likely to drive steady monetary policy tightening, in our view," Struyven said.
In economic terms, full employment is defined as the point at which all available workers have jobs. The remaining are out of work for what economists like to call "frictional" reasons, or because they're basically just between jobs or have only recently entered the labor market.
Just five years ago, Fed officials figured full employment to be around 5.6 percent. At their meeting last week, they lowered that target a full point to 4.6 percent, in some ways confirming the Goldman thesis that the economy is currently beyond full employment.
That's important because of the worry that over-employment can signal the top of the labor market, with a downturn not far behind. In turn, that is why the Fed feels it's important to keep tightening conditions gradually so growth doesn't get out of control.
There's been one big problem so far: Normally such tight labor conditions would be pushing wages higher and causing inflation. However, the current climate is showing few signs that the low jobless rate is working its way into employee paychecks. The Bureau of Labor Statistics reported that average hourly earnings increased just 2.5 percent annualized in May. The Atlanta Fed's wage tracker shows gains for median wage growth of 3.4 percent, but that number actually has been falling.
Struyven said Goldman estimates the long-run sustainable unemployment rate is 4.5 percent, still above the current rate. However, he conceded that the uncertainty in that forecast is "large."
Various factors — for instance, looking at city unemployment rates and their correlation to inflation — suggest the full employment rate could be as low as 4.25 percent.
"We see some room for changes in business dynamism and demographics to reduce the longer-run sustainable unemployment rate further," Struyven wrote.
However, he does not believe that will dissuade the Fed from continuing down the path to additional rate hikes.