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Shock call: Jobless rate below 5% a year from now

Even the Federal Reserve's upbeat forecast for the unemployment rate might underestimate job growth if one analysis is correct.

That's because the rate could be below 5 percent in a year or so, according to a "this time is different" breakdown from Dun & Bradstreet Credibility Corp. CEO Jeffrey Stibel, whose projection appeared Thursday in the online version of the Harvard Business Review.

In Stibel's scenario, improving sentiment among small-business owners will help propel another leg up for hiring, which he said has been boosted for much of the recovery by large businesses. Government support for bigger firms through Federal Reserve liquidity and Wall Street bailouts has propelled hiring so far, but small firms would drive this next leg if this forecast holds up:

Using an alternative model for projecting job growth, we see an entirely different scenario, one in which the U.S. unemployment rate will fall below 5 percent by no later than the middle of next year. This would of course have a profound effect on business and the overall economy.

Yeah, no kidding.

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Fed policy, in which it is holding short-term interest rates near zero while continuing to pump $45 billion a month into bond purchases, likely would be influenced greatly by a sub-5 percent unemployment rate. Though he doesn't address Fed policy in his analysis, Stibel's projections imply an economic growth rate that is faster than the Fed's projected 3.0 percent to 3.2 percent rate for 2015, as well as an unemployment rate in the 5.6 percent to 5.9 percent range.

An acceleration in hiring would push the Fed not only to stop the money-printing for bond purchases—which is expected to wrap up later this year regardless—but also would push the central bank to raising rates more aggressively than current expectations.

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Stibel's prediction foresees an economic cycle different than in past recoveries:

The typical trend in economic recoveries is driven by a process known as "cyclical upgrading," where employment transfers to high-paying industries during booms and low wage jobs during recessions. Small businesses have a disproportionate number of low-wage jobs and that often leads job seekers toward those companies during recessions, which is what then fuels a rebound in employment...

The current economic cycle, however, is different. During this recession, the recovery started with big businesses, spurred initially by government bailouts and stimulus packages given to banks and large corporations. These subsidies were intended to trickle down to smaller businesses but that effect has been slow to occur. This recession was marked by an overall decline in small businesses (typically we see small business starts accelerate), decrease in mean employment size of small businesses, and a lack of turnover for the most tenured employees. All of this led to high unemployment rates.

That's not how things are going now, he said:

(T)he trends we've seen since the beginning of the recession are beginning to shift. Our data is finally showing that the smallest of businesses are growing more optimistic about their prospects, which will eventually lead to the increased hiring that typically comes at the start of a recovery. If the trend holds, it means that the typical post-recession jobs growth will be inverted during the current economic recovery. Thus, we should begin to see an acceleration in new jobs and rapidly decreasing unemployment.

If Stibel is right, then the Fed indeed is being too pessimistic in its employment projections:

The Federal Reserve projections are based on similar assumptions as our alternative model, and thus show a continued trend downwards, but the rate is likely understated as a result of not taking into account small business growth. If small businesses add jobs at the volume suggested by historical averages, the slope will accelerate more quickly. This can give us all confidence that we will see a steady drop to 5.0 percent unemployment next year.

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There are some fundamental flaws in Stibel's analysis, which you can read here.

He acknowledges one: That his "methodology does not account for significant changes in the civilian labor force." It's not just "changes" that aren't accounted for—it's the shrinking of the percentage of workers actively on the job or seeking employment to levels not seen since the late-1970s "malaise days" of economic stagnation.

A job seeker fills out an application during a career fair at the Southeast Community Facility Commission on May 21, 2014 in San Francisco.
Getty Images
A job seeker fills out an application during a career fair at the Southeast Community Facility Commission on May 21, 2014 in San Francisco.

That's important, because the decrease of the labor force participation rate has been as much responsible for the jobless rate falling to 6.3 percent as the mostly modest monthly hiring increases. Assuming a sub-5 percent rate almost has to have an accompanying assumption of further declines in the participation rate—something that would go against consensus economic projections of a steadying and likely slight increase of the rate.

Stibel's approach also fails to recognize another critical factor: Despite small-business sentiment surveys—the National Federation of Independent Business being the most prominent—showing that confidence levels only now are returning to pre-financial crisis levels, it actually has been these businesses that have led job creation, despite their prevalent pessimism.

Read MoreU.S. small business confidence back at pre-recession levels

Businesses with fewer than 250 employees have created a net 3.22 million jobs since unemployment peaked at 10 percent in October 2009, according to a search through Bureau of Labor Statistics data. That is almost identical to the 3.24 million created by firms with 250 or more workers.

Numbers from payroll processing firm ADP highlight the divide even more: Firms with fewer than 50 employees created 2.57 million jobs in the same time period, while those with more than 500 added 1.35 million.

Stibel's assumptions, then, don't seem to give enough credit to small-business hiring. Dropping the unemployment rate by as much as 1.5 percentage points in a year's time? It hasn't happened yet during the recovery, despite the strong pace of small-business job creation.

The upshot of the various conflicting data points: The Fed and Chair Janet Yellen no doubt are hoping that their projections for steady and unspectacular growth hold, but they're likely secretly hoping that Stibel's projections are wrong.

—By CNBC.com's Jeff Cox.