Economists See U.S. on Cusp of ‘Full’ Employment, WSJ Survey Says http://www.wsj.com/articles/economists-see-u-s-on-cusp-of-full-employment-wsj-survey-says-1444313041 ‘Full’ employment seen as no cyclical economic weakness, but also no pressures pushing inflation higher Job seekers attended a job fair in Sterling Heights, Mich., on Sept. 30. PHOTO: LAURA MCDERMOTT/BLOOMBERG NEWS The U.S. economy is at last on the cusp of full employment after years of sluggish recovery and widespread joblessness, according to economists in a Wall Street Journal survey. The U.S. will be in a state of full employment within the first half of 2016, according to a 56% of the economists surveyed.“Full employment” is a term economists use to signify an economy in balance: where there is no longer cyclical economic weakness, but also no pressures pushing the inflation rate ever higher. The term doesn't signify an economy in which everyone has a job, let alone a good one. Close to a fifth of the economists surveyed think the U.S. labor market has already crossed the milestone. The survey of 64 business and academic economists was conducted last Friday through Tuesday, though not every forecaster answered every question. “It’s certainly a big improvement from 10% unemployment,” said Stephen Stanley, the chief economist of Amherst Pierpont Securities. “There’s certainly a lot of people who still feel they’ve been left behind, but just a few years ago, a 5% unemployment rate was a pipe dream.” The results underscore how far the U.S. economy has come after a bout of weak economic performance that was unprecedented in duration in the post-World War II-era. The recession that began in December 2007 propelled the jobless rate to 10% and put more than 15 million Americans out of work. As recently as last year, Federal Reserve officials believed that even by the end of 2016, unemployment wouldn’t be as low as it is now—5.1% in September. Typically, when the economy reaches full employment, wage growth follows. But economists caution that may not happen quickly. “There’s some lag between reaching a tight labor market and wages going up,” said Michael Moran, the chief economist of Daiwa Capital Markets America. “It’s not like a light switch where it happens immediately. We should look for it to unfold gradually over time.” Even as the unemployment rate has fallen in recent years, other signs of weakness have lingered. In particular, the share of Americans participating in the workforce declined. That rate declined in September to 62.4%, the lowest share since 1977, a period when women were far less likely to work. Economists once believed that many of these workers had dropped out due to discouragement and would return to the labor force if the economy were better. Back in December, most economists thought the labor-force participation rate would rise to 63% or higher by the end of 2016 and 20% of economists thought it would climb to 64% or higher, recovering by more than a full percentage point. Those hopes have largely been dashed. Today, the median view is that the labor-force participation rate will remained little changed by the end of 2016. Less than one-fifth of economists think the rate will climb above 63%. “A few years ago, we were expecting it to come back up when things finally settled down,” said Nathaniel Karp, the chief economist of BBVA Compass. “Basically it didn’t happen. We kind of changed our overall perspective on this and started to incorporate more demographic factors into the equation.” Chief among those demographic factors: the aging of the population. The retirement of the baby boomer generation has continued apace. In addition, young people spend somewhat more years in school, and an increasing number of people are on disability. These factors are unlikely to be reversed much by a stronger economy, and thus the once-anticipated flood of workers back into the labor force may not materialize. To be sure, not all economists agree that full employment will be reached so easily or so soon. “We need to re-engage young people before I am convinced full employment is achieved,” said Diane Swonk, the chief economist of Mesirow Financial in Chicago. “The Fed has been consistently too optimistic on full employment.” John Lonski, of Moody’s Capital Markets, argues that full employment may not be reached for five more years, citing the possibility that advancements in technology will restrain wages, that baby boomers’ lack of savings will force them to work, and that government budget cuts will mean many state, federal and local workers will lose their jobs. “Skilled and ambitious workers in the U.S. should do well,” Mr. Lonski said, “However, the wages and salaries of average workers should continue to grow modestly over time.” Despite full-employment nearly in grasp, economists say the future remains far from rosy. They lowered their average forecasts for growth of gross domestic product in this year’s third and fourth quarters. And around three-quarters say the economy is more likely to do worse than their forecast than better; a majority highlighted the risk to the U.S. economy from a global economic slowdown. But if those risks are avoided, they see the economy adding between 180,000 and 190,000 jobs a month next year, with the unemployment rate dropping to 4.7%. Only five of the past 40 years have seen the unemployment rate so low.