Today’s report from the Bureau of Labor Statistics showed the economy added 138,000 jobs in May, with sizable revisions downward in March and April. This level of jobs growth is a bit softer than the average we have seen for the prior 12 months (181,000). Meanwhile, the unemployment rate fell slightly to 4.3 percent, but for all the wrong reasons. The labor force participation rate fell 0.2 percentage points and the employment-to-population ratio also fell 0.2 percentage points. Taken together, that means that the slight drop in the unemployment rate is due to would-be workers leaving the labor force, not getting jobs. Hopefully this is a minor blip due to volatility in the household survey, and not the start of a new trend. Turning to wages, year-over-year nominal wage growth held at 2.5 percent, also in line with recent months.

This morning’s report shows a recovery continuing to chug along, but with labor force participation still weak and wage growth below target levels, it is abundantly clear that we have a ways to go before we reach genuine full employment—where workers including young and old, and workers of all races can fully benefit from the economy. Despite this, the Federal Reserve is widely expected to raise rates when it meets later this month. This would be unfortunate, as the costs of prematurely declaring full employment and slowing the recovery far exceed the costs of waiting to restrain growth and allowing some wage and price inflation.