What will the unemployment rate be in December 2023?

by calculated risks 11/1/2023 12:10:00 PM

I previously posted some questions on my blog for next year: Ten Economic Questions for 2023. Some of these are related to real estate (inventory, house prices, housing construction, new home sales), and I’ll be posting thoughts on those in the newsletter (there will be others like GDP Gross and employment on this blog).

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

3) Unemployment rate: The unemployment rate was 3.5% in December, down 0.4 percentage points year on year. The FOMC currently expects the unemployment rate to increase to a range of 4.4% to 4.7% in the fourth quarter of 2023. What will the unemployment rate be in December 2023?

Five years ago—when most analysts said the unemployment rate couldn’t go down too much—I pointed out that current demographics shared some similarities to the 1960s, that the unemployment rate had fallen to as low as 3.4% in the 1960s—and we could. Look at the low or low unemployment rate in this cycle. It happened, and from a demographics perspective, an unemployment rate below 4% is probably not inflationary.

Here is a graph of the unemployment rate over time:

Click on the chart for a larger image.

The unemployment rate is taken from the Household Survey (CPS), and the rate gradually decreased in 2022. The unemployment rate in December fell to 3.5%, down from 3.9% in December 2021. This ties to the lowest unemployment rate since 1969.

Forecasting the unemployment rate includes forecasts for economic growth and salary growth, as well as for changes in the participation rate (previous question).

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

Unemployment and participation rate for the month of December of each year
Dec Participation rate Change in participation rate (percentage points) Unemployment rate
2008 65.8% 7.3%
2009 64.6% -1.2 9.9%
2010 64.3% -0.3 9.3%
2011 64.0% -0.3 8.5%
2012 63.7% -0.3 7.9%
2013 62.9% -0.8 6.7%
2014 62.8% -0.1 5.6%
2015 62.7% -0.1 5.0%
2016 62.7% 0.0 4.7%
2017 62.7% 0.0 4.1%
2018 63.0% 0.3 3.9%
2019 63.3% 0.3 3.6%
2020 61.5% -1.8 6.7%
2021 62.0% 0.5 3.9%
2022 62.3% 0.3 3.5%

Based on an estimate of the participation rate and job growth (next question), I believe the unemployment rate will rise to around 4% in December 2022 from the current 3.5%. (Below the FOMC forecast of 4.4% to 4.7%) Here are the 10 economic questions for 2023 and some projections:

• Question No. 5 for the year 2023: What was the core inflation rate on an annual basis in December 2023?
• Question No. 6 of 2023: What is the federal funds rate in December 2023?
• Question No. 7 for the year 2023: How much will wages increase in 2023?
• Question No. 8 for the year 2023: How much will housing investment change in 2023? What about new housing and home sales in 2023?
• Question No. 9 of 2023: What will happen to housing prices in 2023?
• Question No. 10 for the year 2023: Will the stock increase further in 2023?

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