The unemployment rate is officially at 5.5% in the US. But is that rate true? Maybe the rate should actually be higher when one considers the low labor participation rate and the long-term unemployed.
Civilian Labor Force
The civilian labor force has not risen much since the crisis. (link)
Do we conclude therefore that there are many unemployed out there beyond the 5.5% unemployment rate?
4-week Average of Initial Claims
Initial claims of workers seeking state jobless benefits has declined to a level near the ends of past business cycles. (link)
A higher level of initial claims shows a weaker economy. Can we expect initial claims to fall more if we expect the economy to get even stronger from here into the future?
Initial Claims / Civilian Labor Force
How can we get a sense if the labor market is reaching a saturation point that would show that unemployment is near its natural potential?
The 4-week moving average of initial claims can be divided by the civilian labor force. (link)
In this graph, since the crisis, initial claims have declined in relation to the civilian labor force employed. The economy has been recovering. Since last October, though, the initial claims have been rising slowly in relation to the civilian labor force.
The graph would imply that maybe unemployment has reached a saturation point consistent with past business cycles. Or can the line continue downward? Could we expect the civilian labor force to continue rising with initial claims to continue falling?
If you see the saturation point taking effect now, then you might conclude that a 5.5% unemployment rate is fairly reliable and that unemployment is getting close to its natural potential..
However, if you see the saturation point going even lower with fewer initial claims per civilian worker, then you might conclude that a 5.5% unemployment rate is too low to reflect normal labor market conditions and that unemployment is not yet near its natural potential.
Update: The unemployment rate is here plotted against the last graph above. The unemployment rate will begin to bottom out when the line for 4-week moving average of initial claims divided by civilian labor force reaches its saturation point.