Photographer: David McNew / Getty Images
Photographer: David McNew / Getty Images
Federal Reserve Chairman Jerome Powell says he and his colleagues have learned a lot in the past decade about the meaning of full employment. Now, they are looking at a new set of labor market indicators as they chart a recovery from the worst economic downturn on record.
Call it the Powell panel.
The Fed chairman recently highlighted several data points that underline the central bank’s shift in focus beyond headline numbers and toward the most vulnerable sections of the workforce. It is an important development for Fed observers to assess how long policymakers will keep interest rates close to zero while judging the data received, including Friday’s employment report.
Read more: Employment growth in the US increases previous estimates; Unemployment drops to 6.2%
The approach marks an evolution from Powell’s immediate predecessor, Treasury Secretary Janet Yellen, who maintained a “panel ”of metrics to help determine the remaining slack in the labor market created by the Great Recession. It focused Fed observers on a series of statistics, such as job openings, Dismisss, underemployment and long-term unemployment that applied to the entire workforce.
By comparison, the statistics on Powell’s list point to things like black unemployment, rising wages for low-income workers, and labor force participation for those without college degrees, categories that historically take longer to recover from crises than more metrics. broad.
“It’s a pretty remarkable change,” said Seth Carpenter, a former Fed official who is now chief economist at UBS for the United States. The new definition of full employment reflects a growing understanding among policymakers that they cannot conclude that the economy has reached such a state until “you really start to see companies competing for workers in all parts of the income distribution,” he said. he.
Here are some of the numbers that Powell is looking at that highlight future challenges:
Black unemployment
Covid made black unemployment rise to 16.7% in April and May last year. In January, it had recovered to 9.2%. But it reversed part of that progress last month, rising to 9.9%, according to Department of Labor data published Friday.
The Fed has faced increasing pressure to recognize uneven expansion in recent years, and the pandemic experience has only contributed to this. Powell has repeatedly said he wants to see broad-based gains in employment, not just in the household or the median. In August, the Fed announced changes to its monetary policy strategy to codify a more inclusive approach.
The long economic expansion that preceded the pandemic continually challenged forecasts of accelerating inflation, even with the decrease in unemployment, indicating the potential for additional gains in the labor market. By mid-2019, black unemployment had dropped to 5.2% – a record low in nearly half a century of data.
During the 2008 financial crisis, Fed officials cut their basic interest rate to almost zero and did not begin to increase it until December 2015. At that time, the overall unemployment rate had recovered from a 10% rise to only 5%. But they did not take into account the unemployment rate of black Americans, which at the time was 9.4%.
Low-wage income
As Fed chairman, Yellen often cited wage growth as a metric for judging progress towards full employment, including a measure produced by the Atlanta Fed on its panel.
In a February 10 speech, Powell cited payment for the poorest 25%, in particular. Just before the pandemic began in the United States, wage growth for this group of workers was 4.7% over an average of 12 months, according to the Atlanta Fed. This marked its highest rate in relation to overall wage growth since the late 1990s.
In January of this year, the last month for which data are available, it had moderated to 4%. In the wake of the 2001 and 2007-09 recessions, earnings growth for the lowest earnings quartile took almost three years to reach the minimum level.
Without college
Powell also highlighted labor force participation rates specifically for those with no college education. The pandemic had an extraordinary effect on them. Last month, its participation rate was just 54.7%, according to the Department of Labor figures published Friday.
Compare that to February 2020, when it stood at 58.3%, compared to a minimum of 56.9% in 2015.
The magnitude of job losses during the Great Recession made it a slow process to recover. Many individuals looking for work ended up discouraging and giving up, which led them to stop being counted as unemployed.
Under Yellen, the Fed raised the rate of labor force participation in its analysis of the employment situation to explain the likelihood that many so-called labor force dropouts would take jobs if work was available. But the slow pace of recovery has sparked discussions among policymakers about whether everyone who lost their job – especially the least educated – would be able to find a new job and therefore should be counted in the deficit.
In 2015, the year that the Yellen Fed started raising rates, “many analysts feared that globalization and technological change could have permanently reduced employment opportunities for these individuals and that, as a result, there could be limited space for the recovery of participation, “Powell said in his February 10 speech.
But the next five years proved that they were wrong, as those who did not have a university degree were increasingly attracted to the job market.
As the Fed chairman said during an event on March 4, “Today, we are still a long way from our goals.”