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• The US labor market keeps on strengthening, with nonfarm payrolls and civilian employment reporting robust monthly gains.
• However, mismatches between available jobs and available workers weighs on the pace of the labor market recovery.• Reentrants into the labor force should not reverse the downward trend in the unemployment rate.• The historical relationship between movements in the unemployment rate and real GDP growth has broken down since the 2007-09 recession, as fluctuations in productivity and financial uncertainty has affected firms’ hiring and firing decisions.
• Further significant improvement in the labor market should be accompanied by faster economic expansion. Our GDP growth forecast of 2.0% in 2012 suggests modest and gradual progress reducing unemployment, averaging at around 8.2% in 2012 from 8.9% in 2011.