US economy will likely return to full employment by mid-2016

US unemployment rate, currently at 5% is already close to the Fed's estimate of the NAIRU, the level consistent with full employment. However, the broader so-called U-6 underemployment measure is at 9.9% suggests that some spare capacity remains in the labour market.

If the recent pace of labour market improvements is sustained, Nordea Markets expects a U-6 underemployment rate of 9% - consistent with full employment would be reached around mid-2016. Nordea Research expects traditional unemployment rate is expected to fall to 4½% by end-2016 and 4¼% by end-2017.

"We continue to see little scope for a major trend reversal in labour force participation as the negative impact of an ageing population is believed to continue dominating positive cyclical inflows to the labour force. Assuming a roughly flat participation rate, we estimate that the "break-even" rate of payroll growth - the rate needed to keep the unemployment rate unchanged - is about 125k per month. However, in case the downtrend in the labour force participation rate over the past two years is sustained, the "break-even" rate would be as low as 70k," says Nordea Markets in a report.