Has the huge drop in the U.S. unemployment rate since 2009 almost come to an end? Signs are pointing to it.
The jobless rate slid to a 49-year low of 3.7% last fall from as high as 10% in the wake of the 2007-2009 Great Recession, aided by the creation of more than 20 million new jobs.
Yet the unemployment rate has since crept up to 4% even though hiring remains quite strong.
The biggest reason the unemployment rate has stopped falling is actually a good one. More people have entered the labor force in search of work — some 2.1 million in the past 12 months.
They get counted as unemployed, however, until they actually find a job.
Most seem to find work soon enough. The U.S. added a whopping 304,000 jobs in January, for example, after the biggest increase in hiring in 2018 in three years. The economy averaged 223,000 new jobs a month last year and gained 2.7 million overall.
The renewed strength of a labor market that had seemed to be losing steam just one year ago is evident in what’s known as the labor-force participation rate. Basically it’s the percentage of the working-age population who either have jobs or are looking for one.
The participation rate rose to 63.2% in January from 62.7% five months earlier, making the highest level in almost six years. The rate tends to go up when jobs are plentiful, wages are attractive and Americans think employment is easy to find.
The labor participation rate may not be done expanding, either. The number of job openings are still near a nearly two-decade high of almost 7 million, outnumbering the 6.5 million people who are officially classified as unemployed.
If people continue to enter the labor force in large numbers, in short, the unemployment rate is unlikely to fall much further, if at all.
One telltale sign of which way the unemployment rate is headed is the weekly report on initial jobless claims. New claims reflect how many laid-off workers apply for benefits.
Jobless claims have also fallen sharply since the end of the recession, but now they may have gotten as low as they will go.
Consider: The monthly average of jobless claims — seen as a more stable than the weekly number — fell to 206,000 in September and touched the lowest level since 1969. Yet it began to rise in October and climbed in early February to 225,000.
“Against a backdrop of a recovery in the labor force participation rate, the signal being flashed by claims is that the jobless rate is unlikely to fall much further,” said chief economist Joshua Shapiro of MFR Inc.
The small backup in jobless claims could also be a sign the long predicted dropoff in hiring is imminent. The U.S. simply can’t keep adding more than 200,000 new jobs a month, many economists say, given the already tight labor market and somewhat softer growth home and abroad.
“The data are suggesting at least some slowing in employment growth,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
A lot less hiring would almost certainly bring the decline in the unemployment rate to a halt, but it wouldn’t mean the economy is teetering on recession. The U.S. has usually continued to grow for a year or more after unemployment fell to a cycle low, most recently in mid-2000s, late 1990s and late 1980s.