NEW YORK (TheStreet) -- When will employment return to normal in the U.S.? It depends on how you count the number of people looking for work.
The Labor Department reported a jobless rate of 5.5% in May, according to a narrow measure that counts people available for work (as opposed to, say, full-time homemakers or retirees) who looked for a job in the past month. Under that measure, known as the U-3 rate, the nation would achieve what the Federal Reserve currently considers maximum employment -- a jobless rate of about 5% -- in the first quarter of 2016, Goldman Sachs (GS) projected in a note this week.
Including underemployed workers and those who have looked for jobs in the past year, or the U-6 unemployment rate, the U.S. would reach full employment around the end of 2016, David Mericle, senior U.S. economist at the New York-based bank, wrote in the report.
Though it may seem to suggest otherwise, full employment doesn't indicate an unemployment rate of zero. The full employment rate is the level at which joblessness is due to individual shifts from one job to another, rather than a lack of demand. With full employment, those who want work can find jobs relatively quickly.
Under the broader U-6 measure, Mericle wrote, full employment would mean a jobless rate of about 9 percent. The rate stood at 10.8% in May, according to a Bureau of Labor Statistics report this month.
Employment is not only a key driver of consumer demand and economic growth, it's one of the determining factors in when the Fed will raise interest rates, which were cut to around zero during the financial crisis in late 2008. Since part of the Fed's mandate is achieving "maximum employment," it must determine how to properly evaluate the different, and sometimes conflicting, measures of joblessness.
Fed officials also must gauge how much of the unemployment is due to a lack of skills in the labor force, which an economic stimulus like low interest rates wouldn't help, and how much is due to a sluggish recovery.
"This means that policymakers will need to rely on their own judgment more heavily than usual in making policy decisions," Canyon Bosler, Mary C. Daly, and Fernanda Nechio wrote in a December report for the San Francisco Fed. "It also highlights that even simple rules do not give simple answers."
In the chart below, Goldman's Mericle points to how the narrow U-3 unemployment rate has fallen more rapidly than the broader U-6 rate, implying that there is more "slack," or untapped resources in the labor market.
"We expect employment gains to continue to substantially outpace labor-force growth," Mericle wrote, which will eventually drive both measures of joblessness down.