1、Gain in August. Within goods, construction employment continues to hold up even though it is interest rate-sensitive and residential investment has weakened recently. Construction payrolls rose by 19,000 in September after rising 11,000 in August. Manufacturing continues to make progress, adding 22,000 jobs in September.
2、The unemployment rate fell back to 3.5%, its postpandemic low. However, the decline was due in part to a contraction of the labor force as the participation rate slipped by 0.1 percentage point to 62.3%. The household survey was not all bad news as employment increased 204,000, while the number of unemployed fell 261,000. Duration of unemployment rose, as did the labor force.
3、The new data were incorporated into the October baseline forecast. We have job growth averaging 374,000 per month this year before dropping to 96,000 in 2023 and then accelerating to 120,000 in 2024. Job growth next year is weaker than that needed to keep the unemployment rate stable.
4、Our forecast is for the unemployment rate to average 3.6% in the fourth quarter of this year, lower than the 3.7% in the September baseline. The unemployment rate rises next year, averaging 4.1% in the final three months of the year, identical to the September baseline and just below the 50-basis point increase that has coincided with every recession. The unemployment rate falls in 2024, averaging 3.8% in the fourth quarter, identical to that in the September baseline.
5、We assume a full-employment economy is one with approximately a 3.5% unemployment rate, around a 62.5% labor force participation rate, and a prime-age employmentto-population ratio a little north of 80%. The labor force participation rate is close but still 0.2 percentage point below this threshold. With nominal wage growth running north of 5%, it is pretty safe to say the economy is at full employment.
6、The most hawkish dots, now six of them, showed policy makers’ willing to raise rates to a target range of 4.75% to 5% in 2023. These dots are higher than the range implied by fed funds futures. The Fed expects to cut rates in 2024, ending the year at 3.9% and 2.9% in 2025. There were no changes to the central bank’s estimate of the neutral fed funds rate, which remained at 2.5%. Therefore, monetary policy will be restrictive through the end of 2025.
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