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 significance of full employment. He is now looking at a new set of labor market indicators as he plans a recovery from the steepest economic downturn.
Call it the Powell dashboard.
The Fed chairman recently highlighted several data points that highlight the shift in the focus of the central bank beyond the main number and to the most vulnerable sections of the workforce. It is an important development for Fed observers to understand how long policy makers will keep interest rates close to zero as they judge the data received, 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 “dashboard ”of values to help determine the remaining weakness in the labor market created by the Great Recession. He focused on Fed observers on a number of statistics, such as job offers, lay offs, long-term underemployment and unemployment that have applied to the entire workforce.
By comparison, the statistics on Powell’s list refer to things like black unemployment, rising wages for low-wage workers, and labor force participation for those without a college degree, categories that have historically had to recover. after recessions than broader values.
“It’s a pretty noticeable change,” said Seth Carpenter, a former Fed official who is now a senior US economist at UBS. The new definition of full employment reflects a growing understanding among policy makers that they cannot conclude that the economy has reached such a state until “you really start to see companies competing for workers on each side. of income distribution, ”he said.
Here are some of the issues Powell is looking at that highlight future challenges:
Black unemployment
Covid saw black unemployment rise to 16.7% in April and May last year. By January, it had recovered to 9.2%. But it reversed some of that progress last month, rising to 9.9 percent, according to Labor Department figures released Friday.
The Fed has come under increasing pressure to recognize the uneven expansion in recent years, and the pandemic experience has only added to it. Powell has repeatedly said he wants to make large-scale gains in employment, not just overall or in the middle. 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 has continually challenged forecasts of accelerating inflation, even as unemployment has fallen, indicating potential for further gains in the labor market. By mid-2019, black unemployment had fallen to 5.2% – a record high in almost half a century of data.
During the financial crisis of 2008, Fed officials reduced the reference interest rate to almost zero and did not begin to increase it until December 2015. By then, the overall unemployment rate had recovered from a high of 10% to just 5%. . But they did not take into account the unemployment rate for black Americans, which at that time amounted to 9.4%.
Low-wage earnings
As president of the Fed, Yellen often cited wage increases as a measure to assess progress toward full employment, including measure produced by the Atlanta Fed in its dashboard.
In a Feb. 10 speech, Powell specifically mentioned paying for 25% of those who won. Even before the pandemic in the United States, wage growth for this group of workers was 4.7% on a 12-month average, according to the Atlanta Fed. This marked the highest rate in relation to the increase in global wages since the late 1990s.
Until January of this year, the last month for which data are available, it moderated to 4%. Following the recessions of 2001 and 2007-09, earnings growth for the lowest wage quartile took almost three years to complete.
No college
Powell also pointed out labor force participation rates especially for those without a university degree. The pandemic had an oversized effect on them. Since last month, their participation rate has been only 54.7%, according to figures from the Department of Labor published on Friday.
Compare this with February 2020, when it amounted to 58.3%, up from a low of 56.9% in 2015.
The magnitude of job losses during the Great Recession has made the recovery from this a slow process. Many individuals looking for a job eventually became discouraged and gave up, causing them to no longer be considered unemployed.
Under Yellen, the Fed raised the rate of labor participation in the analysis of employment status to take into account the likelihood that many of the so-called job losses would take up employment if a job were available. But the slow pace of recovery has supported the arguments made by policy makers as to whether all those who have lost their jobs – especially the less educated – could find a new job and therefore should be considered in absentia.
In 2015, the year the Yellen Fed began to raise rates, “many forecasters feared that globalization and technological change could permanently reduce job opportunities for these individuals and that, as a result, there could be limited opportunities. to regain participation, ”said Powell. in his February 10 speech.
But the next five years proved to be wrong, as those without college degrees were increasingly drawn back into the workforce.
As the Fed chairman said at a March 4 event: “Today, we are still far from our goals.”