Unemployment’s Steady Fall Could Signal Trouble—or a Broader Structural Shift
The unemployment rate has fallen to a 16-year low of 4.3% and may not be done falling.
The question is whether that is good news because it means the economy is still operating below capacity and has plenty of room to run, or bad news because it means the economy is close to overheating and heading for trouble.
A study by the Federal Reserve Bank of San Francisco finds that over the past century, the jobless rate’s “natural” level—meaning the level that signals an evenly balanced economic expansion—has fluctuated in a relatively narrow band between 4.5% and 5.5%. If it goes much above that range it means recession, and much below it could signal inflation or other economic excesses building. It’s now been below that level for four straight months, without obvious evidence of overheating. . .