Sunday, April 22, 2018

Goldman: "Moving Beyond Full Employment"

by Bill McBride on 4/22/2018 11:53:00 AM

A few brief excerpts from a note by Goldman Sachs economist David Mericle:

... Are we really at full employment? Won’t job growth naturally slow down soon? Why is wage growth so much lower than in previous expansions? ...

We now see the labor market as at or a bit beyond full employment. ... we estimate a structural unemployment rate of about 4.5%, modestly above the current 4.1% rate. While the cyclical participation gap has recovered more slowly, it too now appears closed. A further cyclical boost to participation is possible, but we expect it to be quite limited.

Meanwhile, the pace of job creation shows no sign of slowing. ... We see little evidence that supply constraints will impose a forceful natural deceleration any time soon, and instead expect robust labor demand to drive the unemployment rate to 3.6% by end-2018 and 3.3% by end-2019, the lowest rate since the Korean War.

We have long stressed that wage growth expectations need to be recalibrated to the meager rate of productivity growth seen this cycle, implying a full employment rate of wage growth of roughly 3%. ... our wage tracker, now running at 2.5%, looks only moderately disappointing. ... signs of acceleration are emerging, notably in our wage survey leading indicator, now running at 3.2% ...
Mericle argues that the US economy is at or close to "full employment", that job gains will remain healthy for some time, and that wage growth is only "moderately disappointing".