Jobs and the 6.5 Percent Unemployment Rate

This is a comment on the national November Employment Situation report released last Friday, and I use numbers from the report to calculate when the United States might reach the Federal Reserve unemployment rate goal of 6.5 percent.

The unemployment rate fell from 7.9 percent in October to 7.7 percent in November which might appear to be good news. However, this change was driven mostly by a contraction in the labor force of 350 thousand persons. So this is more a function of discouraged job-seekers leaving the labor force than any other factor.

Job growth was 146 thousand jobs, essentially the same as our forecast of 145 thousand jobs. The September jobs number was revised, from a gain of 148 thousand jobs down to a gain of 132 thousand jobs. The October number was also revised, from a gain of 171 thousand jobs down to a gain of 138 thousand jobs. These revisions accumulate to almost 50 thousand jobs less than what was previously thought.

On December 12, the United States Federal Reserve Open Market Committee announced a monetary policy that plans to keep the federal funds rate low until the unemployment rate falls to 6.5 percent.

Curious about how long it would take to get to an unemployment rate of 6.5 percent at current job growth rates, I did a simple calculation. I used the 146 thousand payroll survey jobs to drive a proportionate change in the household survey employment level, which ends up being monthly employment increases of 156 thousand persons. I set civilian labor force on a gradual growth path that maintained the current labor force participation rate at 63.6 percent. These assumptions imply that the United States unemployment rate would subside to 6.5 percent by June of 2017.

June of 2017 is a long way off. I hope job growth will exceed 146 thousand in months to come.

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