Download Observations on Labor Markets - Federal Reserve Bank of Boston

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DELIVERY
Observations on Labor
Markets
Eric S. Rosengren
President & CEO
Federal Reserve Bank of Boston
September 5, 2014
New Hampshire & Vermont Bankers Associations
Annual Conference
Boston, Massachusetts
bostonfed.org
Labor Markets are Improving
▶ Labor markets continue to gradually improve
▶ Vermont unemployment – 3.7 percent
▶ New Hampshire unemployment – 4.4 percent
▶ Both are lower than the national unemployment
rate of 6.1 percent
▶ How much labor market slack remains nationally
is an important determinant of the path of
monetary policy
2
August Employment Report
▶ Today’s employment report is somewhat
disappointing
▶ Payroll employment increased by 142,000 jobs,
below market expectations
▶ Unemployment declined slightly to 6.1 percent, but
once again in part because 64,000 Americans left
the labor force
▶ 7.3 million Americans remain part-time for economic
reasons
▶ Significant labor market slack remains, so
monetary policy needs to be patient in removing
stimulus
3
Implications for “Forward Guidance”
▶ Forward guidance is appropriate when Fed is far
from our goals and short-term rates are close to
zero
▶ As we approach full employment my own view is
that we should no longer issue guidance on
approximate timing of policy changes
▶ “Liftoff” from near-zero short-term rates is going to
be tied to the current and expected path of inflation
and employment, which is shaped by incoming data
▶ Uncertainty around forecast makes reference to
calendar dates as we approach targets potentially
inaccurate
4
Recent Experience
▶ Economic variables have surprised forecasters
▶ Real GDP over the past two years has been weaker
than most forecasters expected
▶ Unemployment has fallen faster than expected
(particularly given the disappointment in real GDP)
▶ Many forecasters expected the inflation rate to
reach the Federal Reserve’s target of 2 percent
more quickly
▶ Primary Dealers Survey provides a wide
distribution of possible dates for “liftoff”
5
Figure 1: Primary Dealers Survey Results:
Average Distribution of Probabilities for the Timing
of First Target Federal Funds Rate Increase
Survey Results as of July 21, 2014
30
Percent
25
20
15
10
5
0
Q4 ≤
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
≥ Q3
2016
Quarter of First Target Federal Funds Rate Increase
Source: Federal Reserve Bank of New York, Survey of Primary Dealers, July 2014
6
Figure 2: Private Sector Forecasts for the U.S.
Unemployment Rate
Forecasts as of August 2014
7.0
Percent
Actual, 2014:Q2
Blue Chip Consensus Forecast (Average)
Survey of Professional Forecasters (Median)
6.5
6.0
5.5
5.0
2014:Q2 2014:Q3 2014:Q4 2015:Q1 2015:Q2 2015:Q3 2015:Q4
Full Employment Estimate of 5.25%
11
9
7
5
3
1
2014:Q2
Source: Blue Chip Economic Indicators, Federal Reserve Bank of Philadelphia, BLS, Haver Analytics
7
Figure 3: Blue Chip Forecast for the U.S.
Unemployment Rate
Forecast as of August 2014
7.0
Percent
Actual, 2014:Q2
Consensus Forecast (Average)
Average of 10 Highest
6.5
Average of 10 Lowest
6.0
5.5
5.0
2014:Q2 2014:Q3 2014:Q4 2015:Q1 2015:Q2 2015:Q3 2015:Q4
Full Employment Estimate of 5.25%
11
9
7
5
3
1
34365
Source: Blue Chip Economic Indicators, August 10, 2014, BLS, Haver Analytics
8
Figure 4: Blue Chip Forecast for the U.S.
Unemployment Rate and Actual Unemployment
Rate
Forecast as of March 2013
8.0
Percent
7.5
7.0
6.5
6.0
Consensus Forecast (Average) as of March 10, 2013
Actual
5.5
5.0
2012:Q4
2013:Q2
2013:Q4
2014:Q2
2014:Q4
Full Employment Estimate of 5.25%
11
9
7
5
3
1
Source: Blue Chip Economic Indicators, BLS, Haver Analytics
9
Errors in Unemployment Forecasts
(Overestimating Unemployment Rates)
– Are They Likely to Persist?
▶ Not necessarily
▶ Workers may reenter labor force as labor markets
tighten
▶ The number of people moving from out of the labor
force into employment is considerably larger than
the number moving from being unemployed (but in
the labor force) to employed
▶ The unemployment rate may decline more
slowly than its recent trend and may not, by
itself, give a full picture of labor market
conditions
10
Alternative Measures of Labor
Market Slack
▶ The U-4 measure includes the unemployed
workers counted in the widely reported U-3, plus
so-called “discouraged workers”
▶ The U-5 measure includes U-4 workers and all
others marginally attached to the workforce
▶ And the broadest measure, U-6, includes
unemployed workers, discouraged workers, all
others marginally attached to the workforce, and
workers who are part time for economic reasons
11
Figure 5: Alternative Measures of Labor Market
Slack
January 1994 - August 2014
18
Percent
U-6: U-5 Plus Workers Part Time for Economic Reasons
U-5: U-4 Plus All Other Marginally Attached Workers
15
U-4: U-3 Plus Discouraged Workers
U-3: Civilian Unemployment Rate
12
9
6
3
0
Jan-1994
Jan-1999
Jan-2004
Jan-2009
Jan-2014
Recession
Source: BLS, NBER, Haver Analytics
12
Figure 6: U-3 and Workers Part Time for Economic
Reasons: 2014:Q2 Difference from Pre-Recession
Average (2005 - 2007)
Part Time For Economic Reasons: 2014:Q2
Minus Pre-Recession Average (2005 - 2007)
5
Percentage Points (Both Axes)
y = 0.5336x + 0.9878
R² = 0.3221
AZ
4
MA
TN
CA
NV
NM
3
FL
NH
RI
2
DE
GA
SC
1
VT
NE
SD
0
ND
AR
AK
-1
-2
-1
0
1
2
3
U-3: 2014:Q2 Minus Pre-Recession Average (2005 - 2007)
Source: BLS, CPS
4
13
Figure 7: U-3 and Workers Part Time for Economic
Reasons: 2014:Q2 Difference from Pre-Recession
Average (2005 - 2007)
Part Time for
Economic Reasons
Unemployment Rate
(U-3)
Measured in Percentage Points
Number of States
Number of States
Below Pre-Recession Average
3
8
Close to Pre-Recession Average
(0 - 0.5 Percentage Points Above)
4
9
Just Above Pre-Recession Average
(0.5 - 1.0 Percentage Points Above)
6
5
Below or 0 - 1 Percentage Points Above
Pre-Recession Average
13
22
1 - 2 Percentage Points Above
Pre-Recession Average
19
16
2 - 3 Percentage Points Above
Pre-Recession Average
14
10
3 - 4 Percentage Points Above
Pre-Recession Average
3
2
4 or More Percentage Points Above
Pre-Recession Average
1
0
Source: BLS, CPS
14
Figure 8: Change in Workers Part Time for Economic
Reasons as a Share of Total Employment by Age
Group: Percentage Point Difference from 2006
7
Percentage Points
7
20-24
Percentage Points
25-34
6
6
5
5
4
4
3
3
2
2
1
1
0
0
2007
2009
2011
2013
2007
2009
2011
2013
Note: Figures for 2014 are through August.
Source: BLS, CPS, Haver Analytics
15
Figure 9: Change in Workers Part Time for Economic
Reasons as a Share of Total Employment by Age
Group: Percentage Point Difference from 2006
7
Percentage Points
7
35-44
Percentage Points
45-54
6
6
5
5
4
4
3
3
2
2
1
1
0
0
2007
2009
2011
2013
2007
2009
2011
2013
Note: Figures for 2014 are through August.
Source: BLS, CPS, Haver Analytics
16
Figure 10: Workers Part Time for Economic
Reasons as a Share of Total Employment by Age
Group
2006 and 2014
12
Percent
2006
10
2014 Through August
8
6
4
2
0
16-19
20-24
25-34
35-44
45-54
55+
Note: Figures for 2014 are through August.
Source: BLS, CPS, Haver Analytics
17
Figure 11: Employment Cost Indices for Civilian
Workers
1994:Q1 - 2014:Q2
5
Percent Change from Year Earlier
4
3
2
1
Total Compensation
Wages & Salaries
0
1994:Q1
1999:Q1
2004:Q1
2009:Q1
2014:Q1
Recession
Source: BLS, NBER, Haver Analytics
18
Concluding Observations
▶ While we have approached full employment more
rapidly than many expected, substantial slack
remains
▶ PCE inflation remains at only 1.6 percent, with no
sign of significant wage pressures from labor
markets
▶ The lack of wage pressures suggests that we are
not yet near full employment, and that there is no
upward pressure on inflation coming from wages
▶ So it seems appropriate for monetary policy to
continue to be patient, in the interest of ensuring
that the economy reaches full employment and
the 2 percent inflation target as quickly as possible
19