Unemployment Measures

The Fed keeps pointing at the low unemployment rate and saying that is their reason to raise rates. Have you seen the unemployment rate in June? It was reported at 5.3 %, down from 5.5% in May. Payroll jobs grew a modest +223,000, but household employment fell by -56,000, while the labor force was declining by -432,000. So job growth is negative and the labor force declines, making the unemployment rate drop.  And that is supposed to be good that rates have to rise?

Perhaps it is that the Fed “thinks” they have to tighten. They “think” they have to return short term rates to “normal” in order to be able to lower rates when the recession comes.  Yes, I actually read this recently! It would be strange to see the Fed tighten when job growth is pathetic, wage growth is stubbornly low and inflation is not threatening anyone.

While the unemployment rate may appear to be “good” at 5.3%, so many other employment measures are weak.  The labor force decline in June and the labor force participation rate dropped to 62.6%, matching a low from 1977. The poll of available workers is still high at 14.4 million, with the augmented unemployment rate is high at 8.8%. Greenspan would never tighten with the pool of labor so high! There are plenty of job openings, over 5 million, but employers are having trouble matching workers with requisite skills. Part-time jobs are still the only alternative for many workers who actually want full-time work, showing how prevalent underemployment really is.

Meanwhile, workers continue to exit the workforce, including the retiring baby boomers, who are taking with them knowledge, skill, and expertise without providing that knowledge to others. So my questions to the Fed is-do you “think” you should tighten now or wait until we actually have sustainable growth.

Dorothy Jaworski, SVP Treasurer, First Federal of Bucks County, www.first Article from the Financial Update, Quarterly Financial Markets & Economic Update July 2015.