Monday, January 7, 2019

Employment situation: unemployment rate Dec 2018

I'm just now back from vacation, so I missed the December unemployment situation data. The (seasonally adjusted) unemployment rate ticked up in December to pretty much exactly where the dynamic information equilibrium model expected it two years ago back in January 2017:

As was discussed in early December, the DIEM was much more successful than the overshooting FOMC and FRBSF forecasts (click to enlarge any graph):

What's even more interesting is that the more recent forecasts from the FOMC and FRBSF (vintage September 2018 and June 2018, respectively) are now undershooting the data while a comparable vintage forecast from the DIEM (April 2018, to compare with the CBO forecast) is pretty accurate:

It's as if the FOMC and FRBSF forecasts "over-learned" from their tendency to be too high as unemployment continued downwards but now are too low as the log-linear decline (in the DIEM) flattens out.



Here is the DIEM forecast of the unemployment rate for African Americans getting it right over the same two year period:

There's also the "prime age" civilian labor force participation rate:

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