US / Employment growth above about 80,000 jobs per month would put downward pressure on the unemployment rate finds research

Daniel Aaronson and Scott Brave « estimate that, currently, employment growth above about 80,000 jobs per month would put downward pressure on the unemployment rate » in Estimating the trend in employment growth on Chicago Fed Letter. (Adapted Chosen excerpts by Job Market Monitor to follow)

Likewise, anything short of this benchmark would push the unemployment rate up. These estimates are lower than the conventional wisdom that 100,000 to 150,000 jobs per month are needed to lower the un- employment rate. Moreover, the authors expect trend employment growth to decline over the coming years, such that even our most optimistic scenarios for labor force participation and immigration fall at or below today’s conventional wisdom.

That said, employment growth has been well short of trend since 2008, opening up a large gap between trend and actual payroll employment. The authors expect this gap to slowly narrow as a result of above- trend growth in economic activity over the next few years. For instance, average job gains of about 240,000, 195,000, or 165,000 per month over the next three, four, or five years would close the gap. When economic activity finally stabilizes at its trend, our estimates suggest that employment growth, and consequently growth in the number of total hours worked, will be slower than in the past. This has ramifications for the potential speed at which the economy can grow in the future.

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How much jobs growth is enough? Fed papers show divide 

In the debate over when the Federal Reserve is likely to start scaling back its massive bond-buying stimulus, the number of jobs the economy generates is key.

And there’s little agreement on exactly where that sweet spot lies.

Researchers from the Chicago Fed on Thursday argued that the huge job losses caused by the financial crisis and the ensuing recession mean the economy must generate about 195,000 jobs a month to bring unemployment down to normal levels within four years.

But a study from the Cleveland Fed on Friday suggests that gains of significantly less than that would mark “steady progress” toward full employment.

“Ultimately, the level of improvement that is deemed ‘substantial’ will be in the eye of the beholder, but we will consider outlooks which make steady and meaningful progress in lowering unemployment,” wrote Cleveland Fed director of research Mark Schweitzer and research economist Murat Tasci in an economic commentary posted to the bank’s website. “The scenarios that we view as relevant in today’s economic environment would produce average employment gains of 150,000 per month or less for the current year.”

Both papers are sure to feed the speculation over what level of job growth could trigger a reduction in the Fed’s current bond-buying program. The Fed – the U.S. central bank – has said it will keep buying assets until the labor market outlook improves “substantially” but has provided no specific benchmarks.

Fed Chairman Ben Bernanke last month said the Fed may consider reducing its pace of monthly purchases, now at $85 billion in Treasuries and mortgage-backed securities, in its next few meetings if the labor market continues to improve.

Fed officials next meet June 18-19 to discuss policy.

Chosen excerpts by Job Market Monitor

via How much jobs growth is enough? Fed papers show divide | Reuters.