Monday, October 5, 2015

September 2015 Employment

Here are a few of the graphs I tend to check on with the monthly employment report.

Durations look good.  Very long term unemployment continues to slowly decline.  And, while insured unemployment has leveled out (at very low levels), there still appears to be a slight downward trend in shorter duration unemployment.  In durations, we see that last month looked like there was an aberration in very short durations that pushed the unemployment rate down.  Even with that aberration correcting back up this month, there was a decent decline in the unemployment rate this month that was hidden by rounding.

In flows, everything still generally looks good, like a well-running expansion.  The one point of concern is the sharp drop in flows from Not-in-Labor-Force to Employed.  This is why there was a drop in labor force participation.  This sort of sharp drop isn't unheard of, and could correct next month.  But, it is definitely something to keep our eyes on.  Especially with the Federal Reserve persistently erring on the hawkish side, if we proceed with a rate hike and subsequent months confirm this drop in flows into employment, this would be an important early indicator that a shift from expansion to contraction was taking place.

It would be completely unnecessary, and I hope we can avoid it.  It looks to me like we are entering a late expansion phase, similar to the late 1990s, and with inflation as low as it is, there really isn't a reason for us to be afraid of monetarily supporting as long of an expansion as we can muster.

Both the net NtoE and net UtoE flows are now on the margin of being uncomfortable.  If the weighted average NtoE (green line above) flow remains under -0.1% and the UtoE flow falls below 0.15%, these would be flow behaviors associated with a coming contraction, especially if they coincide with contractionary Fed policy and a flattening yield curve.


  1. I think the flexibility of domestic labor forces is chronically understated. We see this in certain periods, such as wartime, when suddenly the labor force can expand.

    The United States should shoot for a long period of "labor shortages."

    I do not think we would in fact have labor shortages, I think people would respond to market signals.

    The other advantage of labor shortages, is how will voters vote in a world of labor shortages vs a world of chronic monetary suffocation?

    1. Great comment. The whole notion that we have to keep kneecapping ourselves so the real economy doesn't "overheat" should be an outrage instead of the consensus view.

  2. TravisV here.

    You might be interested in these passages from Bernanke’s new book (Chapter 19 on QE1). I think they contradict each other.

    1. I agree the framework is incoherent. Basically, markets do what the Fed claims they want them to do about half the time, but the Fed claims success no matter what happens.