Photographer: David McNew / Getty Images
Photographer: David McNew / Getty Images
Federal Reserve Chairman Jerome Powell says he and his colleagues have learned a lot over the past decade about the meaning of full employment. Now, they are studying a new set of labor market indicators, as they represent a recovery from the strongest economic crisis on record.
Call it the Powell control panel.
The Fed chairman has recently highlighted several data points that highlight the central bank’s shift of focus beyond the number of incumbents and towards the most vulnerable sections of the workforce. It’s important for Fed observers to understand how long they’ll keep interest rates close to zero as they judge incoming data, including Friday’s job report.
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The approach marks an evolution from that of Powell’s immediate predecessor, Treasury Secretary Janet Yellen, who maintained a “board ”of metrics to help determine the remaining lack of freedom in the labor market created by the Great Recession. He focused Fed observers on a number of statistics such as job vacancies, dismissals, underemployment and long-term unemployment that applied to the entire workforce.
In comparison, Powell’s list statistics take into account aspects such as black unemployment, wage growth for low-wage workers, and labor force participation for those without a college degree, categories that have historically taken time. more to recover from recessions than broader metrics.
“It’s a pretty noticeable change,” said Seth Carpenter, a former Fed official who is now chief U.S. economist at UBS. The new definition of full employment reflects a growing understanding among policymakers who cannot conclude that the economy has reached this state until “you really start to see companies compete for workers in all parts of the income distribution “, he said.
Here are some of the numbers Powell is looking at that underscore the challenges of the future:
Black unemployment
Covid raised black unemployment to 16.7% in April and May last year. In January it had recovered to 9.2%. But it reversed some of those gains last month, rising to 9.9 percent, according to Labor Department data released Friday.
The Fed has faced growing pressure to recognize the uneven expansion in recent years, and the pandemic experience has only been added. Powell has repeatedly said he wants to make general base gains in employment, not just overall or median. In August, the Fed announced changes to its monetary policy strategy to codify a more inclusive approach.
The long economic expansion that preceded the pandemic continually challenged forecasts of accelerating inflation, even as unemployment declined, indicating the potential for other gains in the labor market. By mid-2019, black unemployment had fallen to 5.2%, a record low in nearly half a century of data.
During the 2008 financial crisis, Fed officials cut the benchmark interest rate to near zero and did not begin raising it until December 2015. By then, the general unemployment rate was rising. had recovered from a maximum of 10% to only 5%. But they did not take into account the unemployment rate of black Americans, which at that time stood at 9.4%.
Earnings with low wages
As Fed chairman, Yellen often cited wage growth as a metric for judging progress toward full employment, including a measure produced by the Atlanta Fed on its scorecard.
In a Feb. 10 speech, Powell cited the 25% lower pay of the particular winners. Just before the pandemic broke out in the U.S., wage growth for this group of workers was 4.7% on an average 12-month basis, according to the Atlanta Fed. This marked its highest rate in relation to overall wage growth since the late 1990s.
In January of this year, the last month for which data are available, it had moderated to 4%. After the recessions of 2001 and 2007-09, the growth of profits in the lowest wage quartile took almost three years to decline.
No university
Powell has also highlighted labor force participation rates specifically for those without a college degree. The pandemic has had an excessive effect. According to figures from the Department of Labor released on Friday, until last month the participation rate was 54.7%.
Compare this with February 2020, when it stood at 58.3%, compared to the minimum of 56.9% in 2015.
The magnitude of job losses during the Great Recession made her recovery a slow process. Many job seekers eventually became discouraged and gave up, which made them stop being counted as unemployed.
Under Yellen, the Fed raised the rate of labor force participation in employment status analysis to take into account the likelihood that many of the so-called labor force abandonments would accept jobs if there were there was work. But the slow pace of recovery sparked arguments among policymakers as to whether everyone who had lost their jobs, especially the less educated, would be able to find new employment and therefore the deficit should be reckoned with.
In 2015, the year the Yellen Fed began raising rates, “many predictors were concerned that globalization and technological change would have permanently reduced job opportunities for these people and that, as a result, there would be a limited margin to regain participation, ”Powell said. in his February 10 speech.
But the next five years proved to be wrong, as those who did not have a college degree became increasingly attracted to the workforce.
As the Fed chairwoman said during a March 4 event: “Today we are still a long way from our goals.”