Job-market conditions have improved dramatically in the past month or so.
Combine this with the dramatic improvement in household finances this year, and one is forced to ask: Why is there so much pessimism about the economy?
To be certain, there are lots of things that could be better (e.g., the labor participation rate, the unemployment rate), but there are important labor-market metrics that are now almost as good as they can get.
In the past six months, initial claims for unemployment have declined at a 27% annualized rate. They have rarely been this low.
The labor market may be plagued by a dearth of new positions, but layoffs are getting scarcer.
Conditions have improved significantly: The chances of being fired today are almost as low as they’ve ever been. The number of people receiving unemployment insurance has declined 24% in the past year and is close to pre-recession levels.
With the job market about as tight as it can get, the economy is primed for a burst of hiring and stronger growth if business confidence improves.
That is not a bad problem to have, since there are a number of things that can be done to unleash the economy’s pent-up potential. For example, we could cut taxes, reduce regulations, improve confidence in monetary policy (e.g., start tapering, raise short-term interest rates) and simplify the tax code.
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The private sector is ready to go. Now we just need government to get out of the way.
While the jobless rate has been falling, millions of people have been dropping out of the labor market. That obscures the official numbers published by the government. Here’s an alternate take on the unemployment situation — click on the graphic on the right.