Revisiting Employment Creation Requirements: U.S. Outlook Bleaker Than Originally Thought

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by: Greg Buhrow

In September I wrote my first article for Seeking Alpha on how many jobs the U.S. really needed in order to reach some semblance of full employment and when that would occur.

After the announcement of the October unemployment rate dropping to 9.0% and employment gaining 80k new jobs, I revisited my original article in order to shoot holes in it. I was successful.

I considered the upward revision to August by 47k and to September by 55k jobs and concluded that employment actually increased by 114k per month over the last three month period. The BLS current and historical data may be viewed here. So is that enough?

According to labor force growth estimates from the Congressional Budget Office for 2010 to 2021, the labor force should be growing at a compound annual growth rate of 0.84% or 0.07% per month. So, based on the current level, the labor force should grow at roughly 108-110k per month for the next 2 years.

I then set a target unemployment rate of 6.0% by December 2013 and attempted to determine what the employment and unemployment increase and decrease would need to be, respectively, to achieve that target. The target rate for unemployment was chosen based on an excellent article on full employment by Rex Nutting.

Again, with the labor force growing at 108-110k, employment would need to increase by 283-291k per month and correspondingly, unemployment levels decrease by 175-182k per month.

In other words, not only would the entire increase in the labor force, each month, need to find jobs or108k new workers per month, on average 179k of the then currently unemployed would also need to find work.

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So if the employment level increases by the same as it did in October, or 80k per month, where are we by my same target date of December 2013? Unfortunately, not too far along, in fact, the unemployment rate would increase to 9.3%.

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What if the employment level increases by the same average three-month revised amount as it did for August - October, or 114k, where are we then? As of my target date, the unemployment rate will have dropped to just under 8.8%.

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If we consider Rex Nutting's full employment rate of 6.0% by the second term of Kim Kardashian's term in the White House, or 2023, the employment level would need to increase, on average, by 138k per month.

Therefore, my conclusion, unfortunately, is that the U.S. employment outlook is more bleak than I originally thought.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.