But our “new normal” hasn’t returned us to normalcy just yet. Take what are called “prime-age” workers. These are 25- to 54-year-olds who, for the most part, should be too old to still be in school but too young to be retired. Before the crash, 80.2 percent of them were working, but afterward, that fell to 74.8 percent. Today, that has rebounded to 78.6 percent, which is about three-quarters of the way back to where it was — or, in other words, about two years away from the recovery reaching its final destination. You can see the same sort of thing in wages. Those are rising a bit more, especially when you account for the fact that productivity growth has basically been nonexistent, but the 2.5 percent wages have gone up the past year isn’t what we would expect for an economy nearing full employment.
So, maybe the economy isn’t. Maybe the unemployment rate can go even lower before the inflation monster comes out from under the bed, if it ever does. The Federal Reserve, of course, thinks that lower unemployment will turn into higher wages, and then — this is the important part — into higher inflation, but there isn’t as much empirical support for that as you might think. Indeed, before the tech bubble burst, workers were getting big raises with unemployment at just 3.9 percent, but prices were pretty much under control. Core inflation, which strips out volatile food and energy prices that the Fed can’t do anything about, was right at its 2 percent target even then. Could the same thing happen again? Maybe! Predictions are hard, especially about the future of prices, but there’s very little evidence of the kind of inflationary pressure in the economy that would scream for the Fed to start raising rates faster, if much at all.
Which brings us to maybe the most underappreciated part of the recovery: How durable it has been. It’s not hard to understand why, though. That’s because another way of saying that, as you can see above, is that the recovery has been slow and steady. Other than a brief burst in 2015, we’ve been adding somewhere around 175,000 to 200,000 jobs a month with metronomic accuracy. And it was this glacial pace that left behind millions of would-be workers in 2009 and 2010, even though they didn’t do anything wrong other than lose their job at the worst possible moment. (Their odds of becoming long-term unemployed were 30 percent, compared with 5 or 10 percent during normal times.) But now that we’re relatively close to full employment, this weakness has become a strength. There’s no frothiness in the stock market or housing market that should force the Fed to tighten too much, no signs of excess that should make us think this can’t go on for a long while still.
That is, if the Fed will let it. Then we wouldn’t just be partying like it’s 2007, but maybe, just maybe, like it’s — yes — 1999.