![]() Ultimately, you could argue there was nothing to cause the Fed to deviate, but it also did nothing to resolve the inherent tensions between the no-slack and slackers. Today's report is fully consistent with that view. The Fed's extremely dovish rate path is based on the thesis that there is substantial slack in the labor market - beyond that apparent in the unemployment rate - and that it will cap wage gains and inflation. Despite the solid payrolls figures and the sharp drop in the unemployment rate, there was no follow-through in the wage numbers. There was nothing in today's jobs report that has the potential of moving the needle on the pace of tapering, or on the rate path. For Société Générale, there has been nothing new that would suggest deviating from their current path. 1 Fed priority from a deliberative standpoint is commitment to whatever it's doing so as not to rattle markets. Indeed, the expiration of long-term benefits is the likely reason behind the drop in the labor force and suggests that not everyone receiving long-term benefits planned to return to the labor market. The participation rate has been between 62.8% and 63.2% for nine months and we see little reason to believe that the drop witnessed in April will be repeated. That's the view of UBS' Drew Matus, who writes: It's possible we're reading too much into the drop in labor force participation. Even using a conservative estimate of the "breakeven" rate of job creation-about 80,000 per month, consistent with slowing demographic trends-employment is still roughly 6 million shy of what might be considered 'full employment.' Even at a pace of 200,000 per month (120,000 above the breakeven rate), it would take about another four years to make up that shortfall entirely. We have gone 76 months with essentially no net job growth. Nonfarm payrolls are now finally back within a whisper of their January 2008 peak, and should breach that summit next month. ![]() He argues that our "scariest jobs chart in the world" chart of jobs gained since the recession is indeed still terrifying. Bet on it.įor the defense - those who share Janet Yellen's view that there remains significant slack in the economy - is Josh Feinman of Deutsche Bank. And Fed officials are going to raise rates quicker than you think. With one giant leap this morning the labor market is closing in on full employment. The future was uncertain until today, but now that it is certain, we got the report, the Fed needs to revise their exit strategy. This is not a labor market recovery, the economy is not healing, the economy is full on here. So, the fact we are approaching a 5.6% "full employment" level, he says, should be making everyone feel bullish. He maintains that the unemployment rate is still the single best indicator of the state of the labor market. Unfortuntately, the data doesn't do a great job of providing a clear answer.įed Chair Janet Yellen has indicated the Fed still sees slack.īut a chorus of economists have begun disagreeing. For the prosecution - those who say the economy looks good, and certainly much better than the Fed is saying - is Bank of Tokyo-Mitsubishi's Chris Rupkey. Account icon An icon in the shape of a person's head and shoulders.
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