While demand for labor drives hiring in the short term, labor supply is the key driver of job growth over the long term. Weaker population growth and a decline in labor force participation, brought about by an aging workforce, point to a lower trend rate of employment growth over time. We estimate that nonfarm payrolls will need to rise by 70,000-100,000 per month between now and the end of 2020 in order to keep the unemployment rate stable. This is a lower threshold than previous cycles, when the trend rate of job growth averaged around 150,000 in the 1990s and 120,000 in the early 2000s. The slowdown in job growth since the start of the year therefore indicates that while slack is not declining as quickly, it is still plenty strong enough to lead to a tighter labor market.
Reference : Wells Fargo
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