The economy added a solid 248,000 jobs in September, while the unemployment rate dipped below 6 percent for the first time since July of 2008. This is obviously happy news. The labor market is continuing to move along at a decent clip.
But with good news comes tension. As the unemployment rate continues to fall, you can expect to hear more calls for the Federal Reserve to finally raise interest rates to head off inflation. At this point, that still seems premature. The unemployment rate has dropped, in part, because Americans have left the workforce. At 62.7 percent, the participation rate is at its lowest point since 1978. Some of that is due to retiring baby boomers. But there are still a high number of discouraged workers who want jobs but have stopped looking for employment because they simply don't see any opportunities. Long-term unemployment is improving, but still severe. Meanwhile, hourly wages are up just 2 percent over the year—from August to September, they didn't rise at all—another sign that employers aren't having any trouble finding ready and willing workers.
So there are still Americans sitting out the jobs recovery, and companies still aren't handing out the kind of raises that would create inflationary pressure. The market's getting healthy. But it's certainly not so red hot that Janet Yellen needs to cool it down.