The national unemployment rate has been 4% or lower since December 2021. Robust job gains have averaged 314,000 this year through May, and gross domestic product grew by a strong 2% in the first quarter—a reflection of the American economy’s underlying resilience.
We forecast a net gain of 225,000 jobs and an unemployment rate of 3.7% when the jobs report is released next Friday.
When the June employment report is released next Friday, our provisional forecast implies a net gain of 225,000 jobs and an unemployment rate of 3.7%. On the inflation front, we expect average hourly wages to increase by 0.3% on the month, which would imply a decline to a 3.7% average annual pace of growth over the past three months.
The economic expansion will just not die despite the twin inflation and interest rate shocks over the past two years.
Growth and unemployment rates at these levels are not only a sign of an extraordinary recovery from the previous recession, but also are a sign that this is not your parents’ labor market.
The new paradigm
For decades, the consensus among economists was that at any one time 5% of the labor market would be out of work, the so-called equilibrium or natural rate of unemployment, which is the normal churn of workers leaving jobs and looking for others.
The consensus held that the natural rate of unemployment would drift down from 5% to 4.5% during boom times and then rise again when times got a bit tougher. But in April, the unemployment rate reached 3.4%, with the 12-month average of unemployment reaching a record low of 3.6%.
Today, we think the natural rate of unemployment is closer to 4%, which reflects a mixture of efficiency gains driven by technology and demographic factors that dampen overall unemployment.
A rapidly evolving labor market
What can we infer about unemployment rates that are consistently below what were thought to be normal levels?
Is this just a temporary period of increased employment after the pandemic-induced labor market shock and a rise in the de facto minimum wage?
While those factors undeniably played a large role in reducing the unemployment rate, we also see the drop in unemployment as a sign of the increased efficiency of a now-mobile labor market.
Read more perspectives on economic headwinds facing the middle market from RSM US.
Those of us who once looked for jobs in the want ads of The New York Times, typed out yet another cover letter and then took it to the post office will attest to the efficiency of searching for jobs online.
We suggest that the instant access to job matching will lead to the reestablishment of the trend decline in the duration of unemployment. This comes after the scarring of the labor market in the aftermath of the de-industrialization of the U.S. economy that followed the Great Recession in 2008-9.
In fact, the current median duration of unemployment has fallen to nearly eight weeks during a time of layoffs in technology, finance and other areas of the economy. That decline points to efficiency gains because of less friction in finding employment.
A paper from the University of North Carolina finds that while labor’s strength is typically discussed in terms of bargaining power, an increase in worker mobility implies more freedom for workers to move to a new form of employment as they see fit.
With that in mind, we suggest that the biggest shift of structure for the knowledge economy is a newfound ability to work at home, no matter where that home might be. For in-person workers, there is the efficiency of job matching and online interviews, and the increased means of communication, transportation and resettlement.
