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S&P: US unemployment rate could fall even further

The U.S. unemployment rate is at a 17-year low but it could fall further given the degree of slack in the labor market, S&P Global Ratings said in a new report.

S&P said the unemployment rate could decrease by at least another half-percentage point or even full percentage point from 4.1%, which has been the rate since October 2017.

"We expect labor-market slack — i.e., unused resources — to more or less dissipate in the next year or so as economic growth keeps demand for workers solid, eliminating much of the shortfall between actual and potential employment," S&P said in its report.

In December 2017, the U.S. economy added 148,000 jobs, while the labor force participation rate, or LFPR, remained unchanged at 62.7% over the month and over the year. S&P assessed the degree of labor-market slack through the LFPR.

S&P said if current labor market conditions prevail through the end of 2018, with the LFPR steady at its current level and average monthly job growth of 175,000 to 200,000, the unemployment rate could fall to as low as 3.0%.

Such a level would not be unprecedented, S&P said, as there have been instances in the past when unemployment dropped well below today's mark.

A continuing reduction in the unemployment rate would pose a communication challenge for the Federal Reserve, given the central bank's latest median projection of a 3.9% headline rate by the end of 2018, according to S&P.

"By extension, it behooves the financial market participants to take into consideration the wide range of possible outcomes of the unemployment rate for their risk-management purposes," the rating agency added.

The U.S. Department of Labor is set to release its employment situation report for January on Feb. 2.

Automatic Data Processing Inc. and Moody's Analytics reported earlier this week that U.S. private-sector employment rose by an estimated 234,000 jobs in January from the previous month.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.