Northwest Indiana Discussion

Economists are scratching their heads over the recent failure of a textbook economic law: In order for the unemployment rate to be where it is today, our economy should be growing faster than it is.

FORTUNE -- Lately the improving jobs picture has stumped many Wall Street economists, who say the labor market seems to be doing better than what the pace of economic growth would suggest.
Goldman Sachs (GS) and a few other Wall Street firms forecast real GDP growth of less than 2% this quarter. And yet, the unemployment rate in January dropped to 8.3% – the lowest level in three years. The decline goes against Okun's Law, which economists have historically relied on to forecast what the job market might look like given how quickly (or slowly) the economy is growing. As a rule of thumb, Okun holds that year-on-year economic growth of 2 percentage points above the trend -- widely considered 2.5% -- is needed to lower unemployment by one point. And vice versa.
Since the Great Recession, the unemployment rate has defied the law.