Source: http://www.bloomberg.com/news/articles/2015-11-06/one-of-yellen-s-most-important-labor-market-measures-now-looks-a-lot-better
Friday, November 6, 2015
Labor Market Measures
The Fed has been waiting for both inflation to increase and the unemployment rate to decrease before raising interest rates, and now one of those is in line. The October jobs report showed that the U-3 unemployment rate, the major jobless indicator for economists, has fallen to 5%. This is the lowest that that indicator has been since April of 2008. Similarly, the U-6 rate, which measures the jobless people in addition to those who are marginally attached to the workforce or employed part time, has decreased 0.2% to 9.8%. Like the U-3 unemployment rate, this is the first time this rate has resembled a single digit number since 2008. Because of these changes, the gap between the jobless rate (U-3), and the broadest measure of unemployment (U-6), is now the smallest it has been since 2008. This is a great sign because it shows that the slack of the labor market if finally starting to be reduced, something the Fed has been waiting for. Since there is less slack this will allow us to better interpret the U-3 unemployment rate as the unemployment rate for the whole economy. Along with this is the 313,000 increase in the labor force reported last month. In the past Yellen has been concerned about those who are working in part-time position, but would prefer full time positions. In the past year, this "slack" has also decreased. This decline marks the biggest shrink shrink in this indicator since 1994. All in all, these macro indicators are great signs of economic recovery and will further persuade Yellen and the rest of the Fed to raise rates.
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This is one of the characteristics that the Federal Reserve wanted to see before raising interest rates, but they are very keen on higher inflation. This is a promising sign though. With the unemployment rate decreasing, more people have jobs and the economy can spend more as a whole. This is a good sign for the economy and it definitely will have a factor on the Federal Reserve's decision to raise interest rates or not.
Unemployment rates have declined and now the rates are roughly at the 'natural rate of unemployment'. However, inflation has not really increased significantly to allow the Fed to raise the rates without much hesitation. I wonder how the numbers would work out for inflation in the upcoming months since the Fed mentioned that that they are keen on raising the rates by the end of 2015.
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