The unemployment rate is currently at 4.8%. It’s at 5.0% if you use the seasonally adjusted numbers. The Fed expects 4.7% at year end, as well as in 2017.
Given that we are currently generating about 200,000 new jobs per month, and we only need about 80,000 to maintain current unemployment rates, how can the Fed possibly come up with that projection?
Even the Atlanta Fed’s unemployment calculator, (which estimates that we need about 130,000 new jobs per month to maintain the unemployment rate, not 80,000) tells us that we need 150,000 new jobs per month to reach 4.7% unemployment by year end. There were only two months in 2015 that saw nonfarm payrolls below 150,000
…seems to me that a 4.7% unemployment rate is setting the bar pretty low. Or, the Fed is expecting a significant slowdown in job creation.
I don’t pay any attention to the headline number, or seasonal adjustments. I like the U6 rate as a better indicator. Though what is truly frightening is the steadily dropping in the labor force participation rate.
Yeah, the labor force participation rate has been playing a large factor to the overall headline number. That being said, a declining rate helps to lower the headline number, so the Fed could be predicting more participants reentering the workforce.
Or they just straight line it to arrive at a number +/- 0.5% from where we are now. Their forecasts have never really been very accurate.
Fully agree in the U6 number being more relevant today, but the Fed doesn’t give those estimates (as far as i know).
The only way that the unemployment rate remains stable, but the U6 improves to historical standards, would be for the majority of the 200,000 new jobs to be filled by part-time workers or discouraged workers, like klinko said.
It seems like a stretch to anticipate all the new job gains to be concentrated in those areas. It just seems strange that the Fed would produce an estimate like that which is so far off from what I understand to be the basic math. It makes me wonder if they are anticipating a large shift downward in the number of new jobs created. That would seem counter-intuitive to their rate hike agenda though.
If I had to make a guess, this would be it. The economy is facing headwinds, and I think they made their rate raise in December just to say they raised rates and to get people to stop wondering every time they met “are they gonna do it this time?!”. IMO it is largely symbolic and won’t really have any real impact in the near term until they meaningfully raise rates.
The US economy created more than 150,000 jobs in 10/12 months last year, in the face of significant headwinds (Oil, Fed rate hike expectations, manufacturing declines). Almost every job created was in the services sector, which is relatively immune to the current headwinds that the market is most concerned about.
Given that GDP growth in 2016 should be as strong as 2015, or stronger…and that the Fed may delay rate hikes…I don’t understand where this significant downshift in job creation comes from. If the Fed comes out with a rate delay, this is going to weaken the dollar and provide less pressure to the areas of the market most hit by current economic concerns (high yield, energy, manufacturing). If anything this would encourage further job growth.
I just pulled data from the BLS from 1990 through today to see where the drop is coming from as this is something that gets a lot of headlines but is never really examined other than as a way to shit on Obama. It seems like the demographics would impact this much more than policy ever could, but I’m not going to do any sort of thorough macro analysis. I pulled 5 charts and read off some numbers. I’m an expert now.
Age 55+: Was at 30.3% in 1990. This number grew steadily to a high of 40.7% in mid 2012 and averaged 39.9% throughout 2015
45-54: Opened 1990 at 80.7%. Crossed 83% for 1 month in 1998. Dropped below 80.0% by late 2012 and closed 2015 at 79.6%.
35-44: Opened at 85.5% in 1990. Spent a decade between 84 and 85. Spent the 2000’s between 83 and 84%. Fell to 81.9% in june 2015 and closed the year at 82.6%
25-34: Pretty much the same story as above, but with a 1990 number of 84.1, a 2000 peak of 85.3 and a steady decline since then to 80.7.
16-25: This chart holds between 67 and 65% from 1990 through 2001. Then plummets through 2010. It has held between 54.2 and 55.9% since then.
No specific point, just looking at how the rate has dropped. It appears that the participation for 35+ is probably up, or at least steady. The 16-25 group is taking a beating.
labor force participation rate is simply falling as baby boomers retire, at least that accounts for the vast majority.
I’ve heard the argument that sub 25 employment is down partially because kids are deciding to go to college more frequently and stay there longer, which lowers their labor force participation rate. this could be because of the deteriorating value of a bachelors degree so many are looking to get their masters right away.
LPR for 55+ has increased a massive 10%, or 33% relative to its base. Couple thoughts. Seniors don’t have enough savings/income so they keep on keeping on. I used to live in Florida, I saw it first hand. The guy at Publix that would make my sub sandwiches wheeled an oxygen tank around with him! Some of them do it to keep busy (think old dudes that work on the golf course as starters), others do it because they need to.
45-54: no meaningful difference, even though they are in theory the core of the baby boomers
35-44: the prime working years, was steady, and fell down a couple % in the last year or two.
25-34: also down. The idea that these folks are spending more time in school isn’t necessairly a good thing. As I’ve opined in other threads in the WC, I think we have reached a saturation point in the labor market for college grads. Between slowing global growth and greater efficiency we simply need fewer people to do the same job. So staying in school (probably on loans) and eventually saddling yourself, or the dear federal govt with your balance, isn’t a bullish sign, IMO
16-25: this drop can be attibuted to both the greater enrollment in college, as well as higher minimum wages that have priced the bottom of the labor market out of a job. Remember min wage went from ~$5.45 to ~7.25 from 07-10. Heaven forbid supply and demand actually work…
Now of course without knowing the # of people in each bracket in order to create a wghted average, and the gender split in each age bracket it’s tough to do any strong analysis, but none of the first pass interpretions seem good to me. Please, tell me how grandma and grandpa working longer is good? Tell me how the LPR of people in prime working years dropping is good? How is LPR in college age good? I worked 3 out of my 4 years in college. Not only was it decent money but it prioritized my time and lifestyle.
I think the answer to your question is that the FED numbers have baked in a rise in the participation rate. I don’t think they are forecasting a marked decline in new job creation, otherwise they would not have begun the rate hike cycle recently.