With the U.S. job market healing and the population aging, only 85,000 new jobs a month are needed to keep the unemployment rate steady, acccording to a new analysis from economists at Goldman Sachs.
The bank’s estimate aligns with the view of central bankers at the Federal Reserve, who have downplayed recent weak jobs reports on the grounds that they have been strong enough to keep the labor market moving in the right direction.
Goldman Sach’s analysis is based on Census projections for population growth and estimates for labor force participation, which is on a long-term downward trend largely because of the retiring Baby Boom generation.
Previously, the bank had reckoned that about 145,000 new payroll jobs were needed each month to keep the unemployment rate headed down. Now, it sees the key number as 85,000, or between 125,000 and 45,000, depending on what happens to labor force participation.
That estimate makes recent disappointing jobs reports look better, if only by lowering expectations for the future.
The past two jobs reports have seen an average of just 139,000 new jobs created. More generally, it appears that payroll jobs growth has slowed in recent months, from an average of 260,000 in 2014 to just under 200,000 this year.
Yet Goldman Sachs’ estimate suggests that the bad news shouldn’t change the Fed’s impression that the economy is still on the path to recovery.
This month, Fed Vice Chairman Stanley Fischer said “the labor market has been approaching estimates of maximum employment.” As the economy gets closer to full employment, fewer jobs will be needed each month — unlike during the early days of the recovery, when the country was just beginning to dig back out of the hole created by job losses that reached as much as 800,000 a month.
Even as job creation has slowed this year, the unemployment rate has fallen to 5.1 percent, near the 4.9 percent that Fed officials have projected represents a fully healthy economy.
Goldman Sach’s guess of how many jobs will be needed is perhaps not even higher than Fed officials’ assumptions.
Based on the fact that fewer jobs are needed and the reality that labor force participation is dropping, economists at the Federal Reserve Bank of Chicago estimated recently that 60,000 to 70,000 jobs are needed each month this year to keep the unemployment rate steady. Over the next five years, that number will drop to 50,000.
To close the existing jobs gap entirely by 2016, the researchers concluded, the economy needs to average 170,000 jobs a month.
