Friday, February 8, 2013

The Fed: Reading The Tea Leaves; The New Normal; Unemployment, Jobs

The new normal: 6.5% unemployment.

Before the Great Recession: never exceeded 5%.
While the Federal Reserve has set its benchmark at 6.5 percent, that is significantly higher than the unemployment rate in the year before the start of the Great Recession, which never exceeded 5 percent. Returning to pre-recession normal will necessarily take even longer.
The Fed has established a "new normal" for unemployment: 6.5%. 

How long will it take to get back to pre-recession employment numbers? Bottom line -- it appears the Fed feels that will "never" happen.

Between November, 2011, and November, 2012, the average number of jobs added each month: 220,000. At that rate, we get back to 6.5% in 2Q15.

Unemployment/full employment calculators here.
If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until August 2020 – or eight years – to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate of the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by December 2016 – not for another four years. 
Jobs gap, by state.

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