ECONOMY/JOBS: “The unemployment rate has fallen to a 16-year low of 4.3% and may not be done falling.
The question is whether that is good news because it means the economy is still operating below capacity and has plenty of room to run, or bad news because it means the economy is close to overheating and heading for trouble.
A study by the Federal Reserve Bank of San Francisco finds that over the past century, the jobless rate’s ‘natural’ level—meaning the level that signals an evenly balanced economic expansion—has fluctuated in a relatively narrow band between 4.5% and 5.5%. If it goes much above that range it means recession, and much below it could signal inflation or other economic excesses building. It’s now been below that level for four straight months, without obvious evidence of overheating.
Structural changes in the economy could alter this theoretical natural rate, meaning the jobless rate might have room to go lower without throwing the economy off balance. One reason is the aging workforce. Jobless rates tend to be lower for older workers, who are better trained than younger workers and tend to be more settled in their jobs. With a large portion of the workforce in older age groups, it might be the case that the economy can handle a lower jobless rate.”
-David Harrison, “Unemployment’s Steady Fall Could Signal Trouble—or a Broader Structural Shift,” The Wall Street Journal online, Aug. 27, 2017 04:02pm