February 26, 2013

Last March, we estimated what the natural unemployment rate for the United States was given the number of employed and unemployed Americans as well as the job turnover rates for which Americans were being hired into new jobs or let go from their old ones. Here's what we found:

In the tool, the labor market is considered to be overheating when the official rate of unemployment is below the natural rate of unemployment. That's definitely not the case for January 2012, with a natural rate of unemployment of 7.87% and an official rate of unemployment of 8.26%.

The natural unemployment rate of 7.87% also suggests that the current pace of job creation as given by the JOLTS data will not be sufficient to significantly lower the official rate of unemployment, which we've already seen with the February 2012 employment situation report, where the official rate of unemployment came in at 8.27%, up slightly from the previous month.

Let's do the math again, this time with the data available through the end of 2012:

BLS Employment Situation Table A-1 Data
Input Data Values
Total, Civilian Labor Force, Employed (thousands)
Total, Civilian Labor Force, Unemployed (thousands)
BLS Job Overview and Labor Turnover Table A Data
Total Hires (thousands)
Total Job Separations (thousands)

Natural Rate of Unemployment Results
Calculated Results Values
Ratio of New Hires to Number of Unemployed (%)
Ratio of Job Separations to Number of Employed (%)
Natural Rate of Unemployment (%)
Official Unemployment Rate (%)
How much slack is there in the labor market?

Running the numbers for December 2012, we find that the unemployment rate at the end of 2012 was 7.85% - just a hair below the 7.87% natural rate of unemployment that we estimated with the January 2012 data we used in our previous calculation. Or rather, the pace of job creation throughout 2012 was not sufficient to significantly lower the official rate of unemployment, just as we expected.

But then, we also find that natural rate of unemployment through December 2012 is 7.63%. When compared to December 2012's official unemployment rate of 7.85%, that suggests that the pace of job creation as given by the JOLTS new hire and new separation data will not be sufficient to significantly lower the official rate of unemployment, which we've already seen with the January 2013 employment situation report, where the official rate of unemployment came in at 7.9%, up slightly from the previous month.

That outcome agrees with our tool's finding for the data of December 2012: there's not a lot of slack in the U.S. job market, so there will be little prospect of significantly altering the official unemployment rate data in the short term.

With that being the case, we can expect little improvement in the official unemployment rate this year, which unless something happens to upset the economy, should slowly converge with the natural unemployment rate. Believe it or not, that's consistent with what President Obama's economic forecasters have predicted for 2013, who foresaw back in July 2012 that the U.S. would have a 7.6% unemployment rate by the end of 2013.

### Want to Run Other Numbers for Yourself?

You can get the most recently reported data through the links below!

Employment Situation (EMPSIT)

This report is produced monthly and contains the number of employed and the number of unemployed for the total U.S. civilian workforce. The appropriate data is found in Table A-1 in the data section of the report.

Job Openings and Labor Turnover (JOLTS)

This report is produced quarterly and provides the numbers of those newly hired or who have recently separated from their previous employment in the civilian workforce. This data is found in Table A of the main body of the report.

Just remember not to mix and match the data for different months!

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