Why we may have seen the low point in unemployment for some time


Economist Regis Barnichon is the co-developer of a model to forecast unemployment based on labor force flows—the number of workers moving into and out of unemployment each month. And the November unemployment report didn’t do much for him (text and chart via Brookings):

Both the unemployment rate and labor force participation rate declined by 0.2 percentage point between October and November. Digging into the underlying flow, the improvement on the unemployment front reflects mainly an unexpected increase in the rate at which unemployed people leave the labor force. However, job creation remains very weak, and the job finding rate unexpectedly ticked down. These unexpected movements are probably consequences of Hurricane Sandy: in affected areas, firms may have had to delay hiring, and unemployed individuals may have had to postpone any job search. … [Also], job openings have declined almost continuously since last June (not shown), and the model foresees weaker and weaker recoveries in the job finding rate with each new employment report. In fact, the projection for the job finding rate is now virtually flat over the next six months. … The “steady-state” unemployment rate, the rate of unemployment implied by the underlying labor force flows is projected to increase and hover around 8 percent over the next 6 months. Our research shows that the actual unemployment rate converges toward this steady state. At the current level of 7.7 percent, the unemployment rate is below its projected steady-state rate. Thus, I anticipate the unemployment rate to slowly increase over the coming months.

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