Donald Trump, during Wednesday night’s debate, painted a picture of a US economy in shambles. Here in Massachusetts, we could be forgiven for wondering what he was talking about.
Bay State workers are enjoying one of the best job markets in recent history. According to data released Thursday, the state’s unemployment rate fell to 3.6 percent in September, from 3.9 percent the prior month. That’s not just substantially below the national average of 5 percent, it’s about as low as unemployment ever gets.
So here’s the question (with apologies to Chubby Checker): How low can we go?
Ultimately, the weight of evidence suggests that we could probably push the unemployment rate down a little further, but not much.
There is a point, according to economists, at which unemployment actually gets too low. If it becomes too easy for workers to find jobs, businesses start fighting over them, offering ever-larger raises and bonuses. That may sound great for workers, but for employers it means higher costs.
And that can set off an inflationary spiral. Wages go up, forcing companies to boost prices, which then requires ever larger raises to keep up with spending needs — and on and on.
The goal, in economic policy, is to find the sweet spot called “full employment,” where jobs are plentiful, wages are rising, and inflation is under control.
No one knows exactly where this mystical sweet spot lies, but most economists think it corresponds to a nationwide unemployment rate between 4 and 5 percent, with the best-performing states in the 3 to 4 percent range. In other words, just about where we are right now.
And here’s another reason to think we might really be approaching full employment: Other, broader measures paint the same picture of a roaring job market.
Take what’s called the prime age employment rate. It’s a very simple measure, telling us how many 25- to 54-year-olds have jobs. But over time it has proved to be an extremely accurate indicator. And it suggests that Massachusetts has made up for all the losses of the Great Recession. Right now, 81.1 percent of 25- to 54-year-olds have jobs, according to calculations from the Economic Policy Institute, a nonpartisan think tank that focuses on the needs of low- and middle-income workers. In 2007, before the financial crisis, it was 81.2 percent.
Having said all that, there are reasons to think the Massachusetts job market can get even better.
For one thing, there’s no sign of a wage-price spiral. Census data from 2015 show that Massachusetts workers got a relatively slim boost in 2015, well under 2 percent. And while separate numbers from the Bureau of Labor Statistics tell a rosier story, they don’t show a recent surge.
Even more revealing, this isn’t our best work. In 2000, at the tail end of the dot-com boom, the unemployment rate in Massachusetts was 2.6 percent, a full percentage point lower than today’s. And at that time, over 84 percent of prime age workers had jobs, also substantially higher than today.
So while September’s unemployment rate shows remarkable economic strength, it’s probably not the peak of Massachusetts’ potential.
Whether we reach that peak, however, is mostly out of our hands. The near-term fate of Massachusetts’ economy depends on a pair of fateful political decisions happening far from Beacon Hill.
One: Will the Federal Reserve Board raise rates in December, tapping the brakes in order to slow economic growth?
Two: Who will carry the election and set the agenda for America’s economic future?Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the United States. He can be reached at email@example.com. Follow him on Twitter @GlobeHorowitz.