Are We About to Get the Lowest Unemployment Rate Since the Clinton Presidency?

 

A key question about recent jobs reports, such as the March report last Friday, is what it says about labor market tightness. Just how much slack is left, if any at all? This bullish note from Capital Economics argues that little slack remains, based on two new employment surveys (bold is mine):

  • The latest NFIB and JOLT surveys suggest that, despite the slowdown in payroll employment growth last month, labor market slack continues to diminish. They also provide further evidence that this will soon translate into a renewed acceleration in wage growth.
    • The job openings rate ticked up to 3.8% in February. Admittedly, the hiring rate edged down but both have been broadly stable at relatively high levels for some time. This isn’t a huge surprise, however, given that the number of unemployed people per job opening is at a 16-year low.
    • Meanwhile, although the voluntary quits rate dropped back to 2.1% in February, the continued decline in the unemployment rate is clearly making workers more confident in their ability to find new jobs. Furthermore, the share of small firms in the March NFIB survey saying that job vacancies are hard to fill suggests that the unemployment rate could soon fall below 4%. The latest Conference Board consumer confidence survey points to a very similar outcome.
    • With little slack left in the labour market, wage growth is likely to continue to accelerate. Indeed, the share of small firms planning to increase worker compensation has risen sharply in recent months, and is consistent with annual growth in average hourly earnings rising towards 3.5% by year-end.

By the way, we haven’t seen a sub-4% unemployment rate since 2000.

Published in Economics
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  1. FloppyDisk90 Member
    FloppyDisk90
    @FloppyDisk90

    But, but, labor force participation rate….

    • #1
  2. Muleskinner Member
    Muleskinner
    @Muleskinner

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    What about it?

    • #2
  3. TeamAmerica Member
    TeamAmerica
    @TeamAmerica

    Muleskinner (View Comment):

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    What about it?

    Forgive my presuming to answer for FloppyDisk90, but the L.F.P.R., is still, afaik, not very good. I.e., too many people have given up looking for work, and the unemployment number only includes those actively looking for work.

    • #3
  4. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Muleskinner (View Comment):

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    What about it?

    Is it not true that we have a much larger than average percentage of able Americans unemployed but not counted in these numbers?  The LFPR is a number I have heard economists use to help draw a picture of the employment situation. Are you saying that statistic has no value in considering this matter? I do think that if someone wants to be employed, they should be looking and there are likely high numbers of people looking who don’t show in this number.

    • #4
  5. RyanFalcone Member
    RyanFalcone
    @RyanFalcone

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    Excellent article on participation here. The participation rate just won’t get a whole lot higher due to demographics and social issues. This is not to say that you are not correct. I personally think that millions of 16-26-year-olds who belong in the workforce and not in school is a huge problem. Folks retiring in their 50’s is becoming a problem but I don’t see it as an epidemic. It is also very interesting to study how massive numbers of women in the work force has impacted the issue and the health of families in general but I digress.

    • #5
  6. Muleskinner Member
    Muleskinner
    @Muleskinner

    TeamAmerica (View Comment):

    Muleskinner (View Comment):

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    What about it?

    Forgive my presuming to answer for FloppyDisk90, but the L.F.P.R., is still, afaik, not very good. I.e., too many people have given up looking for work, and the unemployment number only includes those actively looking for work.

    The participation rate, like all unemployment figures has its flaws, but the flaw in the participation rate isn’t the number that have quit looking for work–that is what it measures–it is that it counts the entire non institutionalized civilian population over age 16 against those working and those looking for work. Retirees drive down the participation rate. The aging boomers will drive down the participation rate for some time to come.

    • #6
  7. SEnkey Inactive
    SEnkey
    @SEnkey

    Good point above about young people not working who also don’t belong in school. I think this is another example of Higher Socio-economic norms filtering to the lower classes. Let me explain briefly. Charles Murray says he wished the rich would preach what they practice, especially when it comes to marriage and savings. I think this is an area where they shouldn’t preach what they practice. I married into an upper/middle class family. They all go to college, they all get jobs out of college. None of them work until they’re 25. This blew my mind. How have you never had a job? But it works! They graduate with connections, high IQ, and degrees. They find jobs and begin careers, but may spend a year “finding themselves” or traveling etc.

    Not so for the lower classes. They may delay seeking a career or trade but do so at their detriment. They can’t afford to not work and don’t have connections waiting to place them at 25. Most damaging they soon find programs, or programs find them, to help subsidize their life. Some become stuck in this dependency and never raise above a menial wage.

    Compare that with many of my friends who right out of high school found a trade and started learning it and working. At 30 they are not as wealthy as my upper class college associates who leveraged networks to find career entries. But they are doing well, make a good wage, and are building towards the American Dream: home ownership, family, yearly vacation.

    • #7
  8. SEnkey Inactive
    SEnkey
    @SEnkey

    To the post point: I do think it is a great sign that the slack is running tight and wage growth could increase. That would be a very welcome development.

    • #8
  9. Bob Thompson Member
    Bob Thompson
    @BobThompson

    SEnkey (View Comment):
    Compare that with many of my friends who right out of high school found a trade and started learning it and working. At 30 they are not as wealthy as my upper class college associates who leveraged networks to find career entries. But they are doing well, make a good wage, and are building towards the American Dream: home ownership, family, yearly vacation.

    Another group, that matches closely to my career, consists of those not in the connections network out of secondary school who mix work and education while advancing their career. Some of these actually enter the network eventually and benefit from the connections. I always thought that university education provides three things, (1) skill knowledge, (2) credential, and (3) network connections, that many entering today don’t know about or consider, or they seem to think college is a place to work on social and political issues. I’m not speaking from any actual detailed knowledge or facts, just some impressions. I do have children and grandchildren who span this spectrum.

    • #9
  10. Owen Findy Inactive
    Owen Findy
    @OwenFindy

    RyanFalcone (View Comment):

    FloppyDisk90 (View Comment):
    But, but, labor force participation rate….

    Excellent article on participation here. The participation rate just won’t get a whole lot higher due to demographics and social issues. This is not to say that you are not correct. I personally think that millions of 16-26-year-olds who belong in the workforce and not in school is a huge problem. Folks retiring in their 50’s is becoming a problem but I don’t see it as an epidemic. It is also very interesting to study how massive numbers of women in the work force has impacted the issue and the health of families in general but I digress.

    I think the point of mentioning participation is simply that, in the ratio PEOPLE-WORKING over PEOPLE-TRYING-TO-WORK, the denominator went lower “than it should” under Obama and hasn’t come back to “what it should be”.  It went down artificially because the government made it artificially easier not to work, and I don’t think those distortions have been removed.  So the ratio, which is the employment rate, hides that distortion.  The employment rate should be lower, making the UNemployment rate higher.

    Or, someone can correct me on that.

    • #10
  11. FloppyDisk90 Member
    FloppyDisk90
    @FloppyDisk90

    Sorry for making that snarky remark and then not clarifying.

    I mentioned it because during the Obama administration it was the “go to” statistic for many conservatives seeking to discredit falling unemployment rates as a good news story.  I have my doubts that it will get nearly as much oxygen now that a nominal Republican is in charge.  I could be wrong.

    • #11
  12. Doug Kimball Thatcher
    Doug Kimball
    @DougKimball

    I find it amazing that Nancy Pelosi criticized Trump for doing “nothing.  No Infrastructure.  No jobs bill.”  Why on earth would we need a jobs bill if unemployment is this low?  The problem is the sole focus on the unemployment rate.  In communist countries they have very low unemployment rates, but everyone is still poor with little hope for more.  Underemployment is a much bigger problem; that is capable people juggling several gigs, not one of which has much of a future.  What we need in corporate America is a focus on employees.  People need careers, not jobs.  They need employment security.  What good is an economy that generates only gigs?

    And if corporate America wants to not just survive but thrive, it needs to cultivate and promote its employee base.  Let’s face it, the corporate world has been a pretty volatile place these last few decades.  Of the several places I’ve worked in my 40 year career, not one remains really.  Two are still in business, but they’ve changes ownership or merged with a significant competitor.  The rest have all either closed up or been acquired by much larger entities where they’ve been integrated and disintegrated into something else entirely.

    The many reasons for this severely low survival rate are myriad.  Technology plays a major role.  Regulation plays another.  Some were marginal performers who failed to survive the numerous financial downturns.  Of all these employers only one has thrived, Deloitte and Touche.  Why?  The accountant enrichment act of 2002, Sarbanes-Oxley and the continued abuse of the tax code – that is government regulation.

    At some point employers in the private sector will feel the pinch of a diminished workforce and they will start to compete for workers.  They will find religion and suddenly recognize the benefits of a dedicated workforce and the detriments of unforced turnover.  I’m not sure how they will deal with this – whether it will come in the form of competitive salaries, incentives, benefits or career stability.  Much will depend on how government treats these things.  In the 90s, incentive stock options were popular.  In the 60’s, it was profit sharing, pensions and benefits.

    What this economic upswing will hold is not yet written.  With this trend will come its inevitable ugly cousin, inflation.  Nonetheless, it looks like we’re about to see a decade or so of good things for working Americans so long as government tax and spending policy does not tax and inflate them away.

    You heard it here first.  The decade of the American Employee is about to begin.  I predicted the American Energy surge.  Now you have the rise of the American worker.

     

    • #12
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