Job Growth and GDP Growth

August 03, 2011 | Mike Spychalski, CAIA, Vice President

This week’s Chart of the Week compares growth in nonfarm payrolls to real GDP growth. The year over year change in nonfarm payrolls (i.e. jobs created or lost) is plotted on the left axis, and year over year real GDP growth is plotted on the right axis. As the chart shows, job growth is highly correlated to GDP growth.

Currently, the civilian labor force in the United States (the measure the BLS uses when calculating the unemployment rate) is approximately 153 million people. The civilian labor force has grown at about 0.8% per year since 2000. This means that the U.S. economy needs to add approximately 1.2 million jobs per year in order to keep pace with the growth of the labor force (i.e. keep the unemployment rate at the current level). A 1.0% decrease in the unemployment rate would require an additional 1.5 million jobs on top of that. Given the recent GDP numbers (GDP grew at an annualized rate of 1.3% in the second quarter), the near-term outlook for employment is not very positive.