The US unemployment rate fell to 4.7% in February but remains above a low of 4.6% reached in November 2016. The judgement here is that it may stabilise or edge higher, for three reasons.
First, the jobless rate is inversely correlated with the job openings or vacancies rate, which has retreated from a peak in April 2016 – see first chart. Companies are reluctant to lay off workers – reflected in a low level of weekly initial unemployment claims – but the decline in the openings rate suggests that they are not stepping up recruitment. This may partly reflect uncertainty about healthcare and tax reforms.
Secondly, the labour force participation rate – the percentage of the civilian population in or seeking work – has stopped falling. It may even be embarking on a modest upward trend – second chart. The combination of population growth and a rising participation rate may allow moderate employment expansion to be maintained without a further reduction in unemployment.
Thirdly, growth of labour demand is coincident with or lags GDP expansion – third chart. As previously discussed, real narrow money trends suggest a GDP slowdown into the summer – fourth chart. Recent elevated unit labour cost growth adds to the risk that companies will curb recruitment if economic expansion moderates.