Mar 7, 2018 - Economy & Business

A U.S. jobless forecast of 2.5%

A month after forecasting a then-uber-bullish unemployment rate of 3.5%, Mark Zandi, chief economist at Moody's Analytics, is going further — if the Fed maintains its current pace of interest rate hikes, he says, joblessness could plunge as low as 2.5% by the summer of next year.

Data: Bureau of Labor Statistics; Chart: Axios Visuals
Data: Bureau of Labor Statistics; Chart: Axios Visuals

Why it's a big deal: If that happens, it would match the lowest U.S. jobless rate since the government began tracking the figure in 1948. The precedent is two months in 1953—May and June—when the number was also 2.5%. "That was in the middle of the Korean war," when hundreds of thousands of Americans were fighting abroad and not in the work force, Zandi tells Axios.

The understory: Zandi's model is built on numbers provided by ADP, the payroll processing firm, which reported today that the economy produced 235,000 jobs last month, higher than forecast. ADP produces its report ahead of the Bureau of Labor Statistics, which will release its February figures on Friday.

  • If the economy keeps churning out jobs at the rate of about 200,000 a month — which Zandi expects — unemployment will plunge from the 4.1% reported in January, and below 3% next year, he said.
  • The labor force is growing at only about 100,000 jobs a month, which is why the higher job production rate is eating into unemployment.
  • Jobs growth could even accelerate because of the combination of President Trump's tax cuts and expected government spending, Zandi said.

But but but ... wages are also rising across the country, which will register in the economy as inflation, especially as interest rates tick up.

  • Guy Berger, chief economist at LinkedIn, tells Axios that a large chunk of the hiring is pulling not from the ranks of the unemployed, but poaching from other companies. "People are leaving their jobs for another opportunity," he said.
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