The Prospect of Low Unemployment Rates with No Job Growth (or how the next half century will be so very different from the last half century)

Another great jobs report: 223,000 jobs created and unemployment down to 3.5%.

The unemployment rate has hit 3.5% 7 times in the last 40 months - 3x in the last six months. How extraordinary is that? The last time the unemployment rate hit 3.5% before 2019 was in 1969. Put differently, 3.5% is an unemployment rate we used to hit every half century and now hit every other month.

We're not hitting this because we're creating an extraordinary number of jobs. This decade the economy is creating about 700,000 jobs a year, on average, and the unemployment rate has averaged 3.7%. (Yes. Even counting the huge surge in unemployment during the pandemic.) Last decade it created 2.2 million jobs per year and the unemployment rate averaged 6.2%.

We're creating fewer jobs and have a lower unemployment rate. Why? The simplest answer is that baby boomers are leaving the workforce at a rate of about 10,000 a day now. The economy does not have to create as many jobs to bring unemployment rates to historic lows.

This suggests to me that if Fed Chair Powell is looking at things like labor markets to decide if the economy is overheated, he'll get false signals. In the last 50 years, the labor force doubled. Over the next 50 years, the labor force might not grow at all. This would mean that the average number of jobs created each month will be zero and even that would be enough to keep unemployment at record lows.