Friday, January 9, 2015

Employment Not Near Full

On many fronts the news from the Bureau of Labor Statistics was good today. The December 2013 unemployment rate was down and firm hiring was up. Revisions from previous months continue the good news of higher levels of hiring.

"The change in total nonfarm payroll employment for October was revised from +243,000 to +261,000, and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported."

As other observers comment, there are other signs of the continuing slack in the labor market. Dean Baker of CEPR comments that while the unemployment rate has decreased over the last few months from 5.8% to 5.6% that wage rates continue to stagnate. A major issue is the still declining employment to population ratio.

Jared Bernstein points out that employment growth accelerated over the course of 2014. Why? He makes the case that the decline in fiscal drag ... the turn to fiscal neutrality (no tax increases or spending cuts from the big ones of 2013) ... means that the tepid economic recovery actually created jobs.

Given these comments and other aspects of context, low inflation in the US, low growth and deflation in Europe and apparently China, why would the Federal Reserve still float the possibility of raising interest rates? The interest rate increase would act the same as the fiscal drag from spending cuts. In the absence of any inflation, why? The actions would wind up dis-employing those people who just got jobs. This recovery has been painful and slow and the Fed should take actions to improve employment, not discourage it.

Keep rates low. Encourage Congress to invest in our country.

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