4 Feb 2014
Fed study argues against US labor market deterioration
FXStreet (Barcelona) - On the back of a dismal US jobs report last month, new findings by the Federal Reserve Bank of New York suggest the state of the US jobs market may be healthier than previously thought.
The study, reported by Reuters, notes that "a key measure of the U.S. labor market appears to exaggerate the damage brought on by the Great Recession", adding that "the findings add to evidence that the retirement of baby boomers could be playing a bigger role than previously thought as Fed policymakers struggle to determine whether the dropping unemployment rate is likely to lead to inflation sooner than later."
Should the study strengthen the Fed's view on the jobs market, as Reuters notes, "it could encourage the Fed to continue drawing down its bond-buying stimulus and possibly even tighten policy more quickly than planned."
Additional notes Fed NY study - Reuters
New York Fed economists, including a top adviser to New York Fed President William Dudley, analyzed demographic changes to the employment-to-population ratio. That ratio dropped hard during the 2007-2009 recession and has since remained stubbornly low, suggesting to some that the labor market is much weaker than the improvement in overall joblessness would suggest. While U.S. unemployment has fallen to 6.7 percent from a post-recession high of 10 percent, the employment-to-population ratio (E/P) dropped more than 4 percent from its average in the prior expansionary period and has remained there.
But the researchers, including New York Fed executive vice president Joseph Tracy, found that when the E/P ratio is adjusted for changes to demographics - such as the mass retirement of baby boomers - it has declined. That in turn puts pressure on the actual E/P ratio, suggesting that even though it has remained low, the fact that it has held steady in the last few years represents improvement in the labor market.
"It is important to control for changing demographic factors when looking at the behavior of the E/P ratio over time... these demographic factors are exerting downward pressure on the actual E/P rate, suggesting that the recent lack of improvement in the E/P ratio does not imply a lack of progress in the labor market... the adjusted E/P rate corroborates the basic picture from the unemployment rate that the labor market has been recovering over the past few years, but that it still has a ways to go to reach a full recovery" the study suggests.
The study, reported by Reuters, notes that "a key measure of the U.S. labor market appears to exaggerate the damage brought on by the Great Recession", adding that "the findings add to evidence that the retirement of baby boomers could be playing a bigger role than previously thought as Fed policymakers struggle to determine whether the dropping unemployment rate is likely to lead to inflation sooner than later."
Should the study strengthen the Fed's view on the jobs market, as Reuters notes, "it could encourage the Fed to continue drawing down its bond-buying stimulus and possibly even tighten policy more quickly than planned."
Additional notes Fed NY study - Reuters
New York Fed economists, including a top adviser to New York Fed President William Dudley, analyzed demographic changes to the employment-to-population ratio. That ratio dropped hard during the 2007-2009 recession and has since remained stubbornly low, suggesting to some that the labor market is much weaker than the improvement in overall joblessness would suggest. While U.S. unemployment has fallen to 6.7 percent from a post-recession high of 10 percent, the employment-to-population ratio (E/P) dropped more than 4 percent from its average in the prior expansionary period and has remained there.
But the researchers, including New York Fed executive vice president Joseph Tracy, found that when the E/P ratio is adjusted for changes to demographics - such as the mass retirement of baby boomers - it has declined. That in turn puts pressure on the actual E/P ratio, suggesting that even though it has remained low, the fact that it has held steady in the last few years represents improvement in the labor market.
"It is important to control for changing demographic factors when looking at the behavior of the E/P ratio over time... these demographic factors are exerting downward pressure on the actual E/P rate, suggesting that the recent lack of improvement in the E/P ratio does not imply a lack of progress in the labor market... the adjusted E/P rate corroborates the basic picture from the unemployment rate that the labor market has been recovering over the past few years, but that it still has a ways to go to reach a full recovery" the study suggests.