US Economics: Why didn't the unemployment rate fall more? And will labor supply growth be sufficient?

Research evidence excerpt

US Economics: Why didn't the unemployment rate fall more? And will labor supply growth be sufficient?

IdeaM

Smoothing over the last six months, breakeven still looks

like 50k per month

Over the last several months, payroll increases have been above our estimate of labor

supply growth. We estimate the breakeven pace for payrolls consistent with an

unchanged unemployment rate to be 50k per month. With the faster payrolls pace of the

last several months, why hasn’t the unemployment rate fallen? And if payroll strength

continues, will labor supply be sufficient?

In the past three months, payrolls averaged 188k per month and the unemployment rate

inched down 0.14 pct pt; the combination suggests a breakeven pace of 110k—well above

our 50k estimate. However, in the prior three months payrolls fell -4k per month on

average and the unemployment rate fell 0.10 pct pt, consistent with a breakeven pace of -

50k. If the household survey and establishment survey were perfectly calibrated, then the

unemployment rate would have risen more in the three months through February, then

fallen more in the three months through May, all to end up at the same, current 4.3% rate.

Six-, nine-, and 12-month comparisons make for a cleaner assessment, and they look

consistent with the 50k breakeven we have estimated. For example, over the past 12

months, payrolls have risen at a 42k monthly pace, the unemployment rate has inched up

0.05 pct pt, and we calculate the observed breakeven pace at 48k.

Exhibit 2: The measured breakeven pace for payrolls fell Exhibit 3: We continue to expect 50k per month as the

sharply in the three months through February, then rose sharply breakeven pace. They past 6, 9, and 12 months look consistent

in the three months through May with that estimate.