January’s slower job growth is likely to become the norm, due to decreased labor force growth and the fact that fewer people are out of work and need jobs, officials say.
The upshot is that monthly job growth is going to slow from the current pace of 231,000 over the past three months to just 75,000 in the years ahead, the Bureau of Labor Statistics’ projections suggest.
“I wouldn’t be surprised if the pace of job gains slowed somewhat,” Federal Reserve Bank of Cleveland President Loretta Mester said Thursday, “but the gains should be strong enough to put additional downward pressure on the unemployment rate.”
The main factor driving the decline in job growth is the aging of the Baby Boom generation into retirement.
Largely because of the aging of the baby boomers, labor force growth is to slow to 0.5 percent annually this decade, down from 0.6 percent last decade and 1.2 percent in the decade that spanned the 1990s and 2000s, the Bureau of Labor Statistics projected in December.
Deutsche Bank economists John Tierney and Stuart Kirk projected in a note Friday morning “that monthly average nonfarm payrolls could drop to 140,000 this year, and to 78,000 by 2020 solely due to these demographic trends, even if the US recovery remains on track.”
For now, there are still many more unemployed people than economists at the Federal Reserve and in the private sector think there would be if the economy were healthy. There is also a large, but unknown, number of people who would like jobs but are not actively looking because they can’t find them. Furthermore, there are people who have been forced into part-time work because they can’t find jobs.
Goldman Sachs, including this backlog of people who are still underemployed because of the recession, believes that only 85,000 jobs are needed right now to keep the unemployment rate falling from its current 4.9 percent.
In testimony on Capitol Hill in December, Fed Chairwoman Janet Yellen said the number of jobs needed each month to bring the unemployment rate down and job-hunt-quitters back into the labor force is “quite a bit less than the 200,000 or so jobs we have had” each month.
It is likely true that the economy is still well short of the jobs it would need to be fully healthy. One estimate, from the nonprofit think tank the Hamilton Project, suggests that the country needs 2.5 million jobs to return the economy to pre-recession levels and absorb all newcomers into the labor force.
Nevertheless, that’s a lot fewer than were needed before. At the height of the recession in late 2009, there were 15.4 million unemployed workers. Now, there are 7.9 million.
Some high-ranking officials believe that there’s not much further to go.
“I’m sometimes amazed when people say the economy has done nothing,” Fed Vice Chairman Stanley Fischer said at a press event Monday. “I say, what odds would you have given on the economy being at full employment in 2015 when the crisis started?”
