Goldman: Jobless Rate to Fall as People Keep Dropping Out of Work Force

The unemployment rate will fall below 4.5 percent by the end of 2018 from 5.1 percent now as people keep dropping out of the work force, according to Goldman Sachs Group Inc.

The New York-based bank revised its economic estimates after the non-farm payrolls report showed that the share of the U.S. population in the work force fell to 62.4 percent in September, the lowest in almost 40 years. The civilian work force consists of people ages 16 and older who have a job or are looking for one.

“The retired share of the population has increased more than we expected,” Goldman economists Jan Hatzius and David Mericle said in an Oct. 10 report obtained by Newsmax Finance. “There has been an increase in the share of prime-age workers who report that they do not want jobs.”

Economists have debated whether the drop in participation is a short-term trend driven by the business cycle or a long-term structural change in the economy. Goldman’s analysis suggests the trend won’t reverse because baby boomers are retiring in droves.

The participation rate will keep falling by a quarter percentage-point annually in the next few years, according to the bank. Because people who drop out of the work force aren’t counted as jobless, according to the methods used by the U.S. Bureau of Labor Statistics, the unemployment rate will also drop.

The bank forecasts that the Federal Reserve will raise interest rates by a quarter percentage-point in December. The central bank has held its target rate near zero percent since 2008, when the U.S. economy shrank the most since the Great Depression.

“The downward revision to our participation forecast has directionally hawkish implications for monetary policy,” according to Goldman. “At the margin, this is consistent with the greater desire to start normalizing the funds rate that many Fed officials have recently expressed. it is also worth keeping in mind that our results still show a considerable amount of remaining labor market slack, which is consistent with the continued softness of wage and price inflation.”

David Stockman, the former White House budget director under President Ronald Reagan, said the government's payroll statistics understate job-market weakness. He said much of the job growth since the last recession is attributable to employment gains in health care, education and social services — areas that are dependent on government transfer payments.

"The September jobs report showed the grand sum of 96,000 jobs gains for the entire U.S. economy outside of the government financed Health, Education and Social Services sectors (HES Complex) since December 2007," he said in a blog post