After the weakness in payroll job growth the last two months, this month’s Employment Report gives us reason to be optimistic about the future of the economy. Payroll employment grew by 287,000 jobs in June. As I discussed extensively yesterday, this is the kind of job growth that would likely get us to full employment within the next year. Specifically, if we saw job-growth in excess of 260,000 jobs per month over the next year, we could expect to see the unemployment rate approach 4.0 percent and the labor force boost up significantly. If instead we averaged closer to 100,000 jobs per month (not far below the average of the three months leading up to this report), this would only keep the economy in a steady state of labor market health, pulling in just enough workers to absorb new population growth.

Robust payroll employment is only one piece of the full employment puzzle, and other indicators are still lagging behind. Two key puzzle pieces are the prime-age employment-to-population ratio (EPOP) and nominal wage growth.

The share of the population 25-54 years old with a job fell significantly during the recession. For much of the last four years, the prime-age EPOP has been climbing, albeit in fits and starts. In June, it hit 77.8 percent, about where it’s sat the last few months. It still has a long way to go before it hits the most recent pre-recession peak of 80.3 percent from 2007 or the full employment peak of 81.9 percent in 2000. At 77.8 percent, the current prime-age EPOP is still below the lowest level reached during the last two business cycles we experienced before the Great Recession (78.1 percent).

Likewise, year-over-year nominal wage growth is far below what we would expect in a full employment economy. June’s wage growth of 2.6 percent is certainly an improvement over the slower growth we’ve seen for much of the recovery, but it’s still below levels consistent with the Federal Reserve’s inflation target and trend productivity growth. If payroll employment continues to be strong over the coming months, the economy will tighten, putting a bit more leverage in the hands of typical workers. We should see that increasing power translate into stronger wage growth. Recent small upticks in nominal wage growth may well indicate this is beginning to happen. But wage growth is still too slow, and for now, the Federal Reserve is doing the right thing by letting the economy continue to strengthen before putting on the brakes.