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June 22, 2012
Employment growth and the FOMC Summary of Economic Projections
Here at macroblog we are always keen for an excuse to play with the Atlanta Fed's Jobs Calculator, and Wednesday's release of the Summary of Economic Projections (SEP) from the most recent meeting of the Federal Open Market Committee (FOMC) provides the perfect opportunity. The SEP, as you know, offers up three-year (and longer-run) projections of growth in gross domestic product (GDP), inflation measured by the personal consumption expenditure index (both headline and core), and the unemployment rate.
The SEP does not directly provide information on employment growth, and each of the 19 FOMC participants among the seven governors and 12 Federal Reserve Bank presidents will have their own views about how all the dots connect between GDP growth, unemployment, and job creation. I don't presume to speak for any of them, but with a few assumptions we can get a ballpark sense of how the range of unemployment rate projections might map into payroll job changes.
Assume, for example, that the labor force participation rate—the share of the working population that is either employed or actively seeking work—remains at its May level of 63.8 percent through 2014. In this case, the "central tendency" range of unemployment rate projections implies the following:
As a frame of reference, here is the recent employment record in the United States:
Overall, the hypothetical job growth based on SEP projections looks reasonably consistent with the employment experience of the last year and a half or so. If you yourself are inclined to think that the 2011 experience or the 12-month trend represent the most likely pace for the job growth going forward, you would probably find yourself in agreement with the lower unemployment numbers in the SEP. If you are convinced that the past three months represent a persistent downshift in the pace of job creation, you probably align with the higher end of the projections.
All of these calculations depend on my assumption about the labor force participation rate, and we along with many others have been warning that a constant participation rate may not be in the cards. Interested readers can go to the calculator and plug in their own participation rate assumptions and see how the resulting jobs numbers change. Our sense is that the participation rate is most likely to rise, which would count as a risk that the calculations above understate the job growth needed to hit the indicated ranges for the unemployment rate. On the other hand, some have argued that the expiration of extended unemployment benefits will actually lower the participation rate, as some people will simply drop out of the labor force. Declines in the participation rate would lower the job creation needed to support the unemployment rate projections in the SEP.
We'll see, but barring the participation complication, the unemployment rate projections on their face look pretty consistent with the same sort of progress on the job creation front that we have seen over the past couple of years. For better and worse.
By Dave Altig, executive vice president and research director at the Atlanta Fed
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