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Question #3 for 2023: What will the unemployment rate be in December 2023?

by Calculated Risk on 1/11/2023 12:10:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I’m adding some thoughts, and maybe some predictions for each question.

3) Unemployment Rate: The unemployment rate was at 3.5% in December, down 0.4 percentage points year-over-year. Currently the FOMC is forecasting the unemployment rate will increase to the 4.4% to 4.7% range in Q4 2023. What will the unemployment rate be in December 2023?

Five years ago – back when most analysts said the unemployment rate couldn’t go much lower – I noted that current demographics shared some similarities to the ’60s, and that the unemployment rate bottomed at 3.4% in the ’60s – and that we might see the unemployment rate that low or lower in this cycle. That happened, and from a demographics perspective, an unemployment rate below 4% would probably not be inflationary.

Here is a graph of the unemployment rate over time:

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate decreased gradually in 2022. The unemployment rate decreased in December to 3.5%, down from 3.9% in December 2021. This tied the lowest unemployment rate since 1969.

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

Here is a table of the participation rate and unemployment rate since 2008.

Unemployment and Participation Rate for December each YearDecember ofParticipation RateChange in Participation Rate (percentage points)Unemployment Rate200865.8%7.3%200964.6% -1.29.9%201064.3% -0.39.3%201164.0% -0.38.5%201263.7% -0.37.9%201362.9%-0.86.7%201462.8%-0.15.6%201562.7%-0.15.0%201662.7%0.04.7%201762.7%0.04.1%201863.0%0.33.9%201963.3%0.33.6%202061.5%-1.86.7%202162.0%0.53.9%202262.3%0.33.5%Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will increase to around 4% in December 2023 from the current 3.5%. (Lower than the FOMC forecast of 4.4% to 4.7%).Here are the Ten Economic Questions for 2023 and a few predictions:

o Question #1 for 2023: How much will the economy grow in 2023? Will there be a recession in 2023?
o Question #2 for 2023: How much will job growth slow in 2023? Or will the economy lose jobs?
o Question #3 for 2023: What will the unemployment rate be in December 2023?
o Question #4 for 2023: What will the participation rate be in December 2023?
o Question #5 for 2023: What will the YoY core inflation rate be in December 2023?
o Question #6 for 2023: What will the Fed Funds rate be in December 2023?
o Question #7 for 2023: How much will wages increase in 2023?
o Question #8 for 2023: How much will Residential investment change in 2023? How about housing starts and new home sales in 2023?
o Question #9 for 2023: What will happen with house prices in 2023?
o Question #10 for 2023: Will inventory increase further in 2023?

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