The Jobs Conundrum

At next week ’s FOMC meeting, the state of the labor market will play a key role in policy deliberations. But there’s a lot more going on underneath top line unemployment numbers that make them a bad tool for monetary policy decision-making.The May employment reportis a conundrum. Employment growth and the unemployment rate sent opposing signals about labor market conditions — much like they have been doing throughout the recovery. The economy added138,000 jobs last month, with the three-month average only at 121,000 jobs, suggesting labor market weakness.By contrast, the unemployment rate fell to 4.3 percent — thelowest reading in 16 years. Additionally,job openings are near an all-time high. Andvoluntary quit rates are up. These data all suggest tight labor market conditions.The weak employment growth is consistent with the sub-par economic growth we have experienced since the recession. But deep recessions, like the one we just experienced, are normally followed by a stronger than average recovery, not a weak one. There has been no calendar year during the recovery in whichreal GDP grew at three percent — a desultory performance.The week recovery has managed a fairly steady, if very gradual, fall in unemployment, bringing it to a 16-year low. As a result,manyobservers declare we are at full employment. But unemployment is so low because of thelengthof the recovery, not overall economic strength. We have had a long-lived, weak expansion — with unemployment stat...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs