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Monday, January 03, 2022

Question #3 for 2022: What will the unemployment rate be in December 2022?

by Calculated Risk on 1/03/2022 03:02:00 PM

Earlier I posted some questions on my blog: Ten Economic Questions for 2022. Some of these questions concern real estate (inventory, house prices, housing credit, housing starts, new home sales), and I posted those in the newsletter (others like GDP and employment will be on my blog).

I'm adding some thoughts, and maybe some predictions for each question.

3) Unemployment Rate: The unemployment rate was at 4.2% in November, down 2.5 percentage points year-over-year.   Currently the FOMC is forecasting the unemployment rate will be in the 3.4% to 3.7% range in Q4 2022.  What will the unemployment rate be in December 2022?

Here is a graph of the unemployment rate over time:

unemployment rateClick on graph for larger image.

The unemployment rate decreased in November to 4.2% from 4.6% in October, and down from 6.7% in November 2020.

The unemployment rate is from the household survey (CPS), and the rapid decline in the unemployment rate is due to a combination of job growth and sluggish increase in the participation rate (previous question).

Employment Recessions, Scariest Job ChartThe second graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms. However, the current employment recession, 20 months after the onset, is now significantly better than the worst of the "Great Recession".

It took several years to recover all the jobs lost following the 2001 and 2007 recessions, and so far, jobs are recovering quicker this time.

Year-over-year change employmentThe third graph shows permanent job losers as a percent of the pre-recession peak in employment through the November report.

This data is only available back to 1994, so there is only data for three recessions.

In November, the number of permanent job losers decreased to 1.921 million from 2.126 million in October.

These jobs will likely be the hardest to recover, so it is a positive that the number of permanent job losers is declining fairly rapidly.

Goldman Sachs expects:
"With labor demand red hot and enhanced unemployment benefits now expired, we expect the unemployment rate to return to the pre-pandemic 50-year low of 3.5% by the end of 2022."
Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will decline into the mid 3% range by December 2022 from the current 4.2%.  

Some thoughts:
Question #1 for 2022: How much will the economy grow in 2022?
Question #2 for 2022: Will the remaining jobs lost in 2020 return in 2022, or will job growth be sluggish?
Question #3 for 2022: What will the unemployment rate be in December 2022?
Question #4 for 2022: Will the overall participation rate increase to pre-pandemic levels (63.4% in February 2020)?
Question #5 for 2022: Will the core inflation rate increase or decrease by December 2022?
Question #6 for 2022: Will the Fed raise rates in 2022? If so, how many times?
• Question #7 for 2022: How about housing starts and new home sales in 2022?
Question #8 for 2022: Housing Credit: Will we see easier mortgage lending in 2022?
Question #9 for 2022: What will happen with house prices in 2022?
Question #10 for 2022: Will inventory increase as the pandemic subsides, or will inventory decrease further in 2022?