Tag Archives: job market

Janet Yellen’s labor market indicators

The Fed Chairwoman, Yellen eased the financial markets’ concern that the Fed might raise interest rates sooner than expected. She explained how she evaluated the current economic situation, especially quite confusing labor market condition, and she made it clear that economy still is far below natural level of unemployment. Yellen’s comment contributed to rise of the stock prices. The Dow Jones Industrial Average gained 135 points, or 0.8%, to 16458. The S&P 500 index added 15 points, or 0.8%, to 1872.

Wall Street Journal reported five statistics, which Yellen used to explain that the current labor market still has quite a substantial slack. These are existence of large part time worker, low job turnover rate, modest wage growth, increase of long-term unemployment, and lower job market participation rate. These all explain why unemployment rate can be misleading in interpreting labor market condition.

Among those indicators, the most interesting evidence is the decrease of job market participation rate. Job market participation rate decreased from 66% to 63% during the Great Recession and kept decreasing during the recovery process too. So, even though unemployment rate decreased, that’s partly because some people give up searching for jobs any more. Another interesting interpretation is the decreasing job turnover rate. As people fear successfully getting new jobs, they less quit current jobs. This results in decrease of job turnover rate representing bad condition of labor markets.

There are some people even in the Fed, who argue that the Fed should tighten as soon as possible to prevent adverse effects of easy monetary policy. But I think hasty tightening of monetary policy could cause more harm than good. So, as the Fed begin to taper its bond buying program, I somewhat worried that early tightening may hurt economic recovery. But I feel more relieved that Yellen has strong determination to boost the economy further. Once the economy shows signs of being overstimulated, the Fed has enough power to cool down the economy effectively.

One other interesting thing about Yellen’s speech is that she explained the current economic situation by talking about three ordinary Americans, who had struggled to find jobs. She approached this economic problem easy to understand and emotionally. I think this kind of communication is very effective to convey intention of monetary policy to ordinary people with no economics educational background.

Wall Street Journal even described this way of Yellen’s speech as striking, because central bankers tend to use difficult economic jargon, which only can be understood by professional investor or academics. This make ordinary people to difficult understand monetary policy. It is interesting to watch how the first chairwoman lead the monetary policy, and this new communication style seems quite effective and fresh.

Job Market Rebounds

The job market appeared to be more promising in February as hiring has picked up. Despite the cold winter, there is more hope that the US economy will break out of the slump this spring. After two months of weak growth in the labor market, non-farm payrolls have grown by 175,000 in February. Also, the unemployment rate has increased from 6.6 to 6.7 percent, but a large part of this was due to more people joining the workforce.

Screen Shot 2014-03-14 at 3.13.34 PM

Due to the fact that retail sales, manufacturing output, and housing have weakened in recently, this jump in the job market could be a step leading to less people worrying about the US economy. If the harsh winter really was the cause of sluggish sales, we may see a direct increase in sales as the weather improves. For example, Bob Evans Farms Inc. commented that the cold, especially in the Midwest, has been the cause of a downturn on sales. The company also commented that this means that they will have to lay off workers.

However, there are also positive signs- “For the first time in 46 months, more unemployed people found a job than dropped out of the workforce.” This shows signs that less people are discouraged to find work. This is also noticeable from the unemployment rate, due to the fact that more people are joining the labor force. In addition, a measure of people working part time who want a full-time job has fell to 12.6%, its lowest since November 2008. Another possible sign of a stronger labor market is the rise in average hourly earnings by 2.2% in the past year.

In my opinion, I believe the news about the labor force is good news, but I only see the recent job creation as having more of a neutral effect on the economy. The public only expected about 150,000 news jobs to be created. However with 175,000 new jobs actually being created, the labor market isn’t decelerating but it also isn’t accelerating. The actual amount of jobs for the economy to stay on track should be around 250,000 every month. Also, the recent job creation has implications at the Fed. The graph below shows a rise in the unemployment rate from 6.6 to 6.7. This buys the Fed more time to decide whether or not to raise the short-term interest rate from near zero once the unemployment rate drops below the 6.5% threshold. In terms of purchases, it still looks as though the Fed will still pull back its bond-buying to $55 billion this March.

Screen Shot 2014-03-14 at 3.13.55 PM

Will the Government Force Residents of a Fishing Town to Resettle?

Little Bay Islands, of the Canadian province Newfoundland, has a population of just over seventy people who still live there year-round. The fishing town has no retail shops and a school of just two children. It’s no wonder that most residents who once lived in this small town have already resettled elsewhere. With a limited number of jobs available in the town itself and a sub-par education system, most families have chosen to relocate with means to find  a wider range of jobs and a better education for their children. The provincial government has even proposed raising its resettlement offer from $150,000 per household to anywhere between $250,000 and $270,000 per household.

While this may be more than enough of an incentive to relocate for most residents of Little Bay Islands, residents such as Perry Locke, who has a full-time job at the local electric utility, are not willing to accept the government’s resettlement offer. He says the resettlement offer of $250,000 would barely be enough to cover the cost of a house elsewhere. Not to mention, this would mean that he would have to quit his job. As the job market recovery is far from complete and there are still high numbers of long-term unemployed and part-time workers, it is not a risk that the remaining handful of employed villagers are willing to take. The opportunity cost of Locke leaving his job and house to relocate is just too great of a risk to take by being forced into finding a job in a new community.

However, with Little Bay Island’s continuing decline in growth, the government wants to shut down the town to save money. While a resettlement offer of as much as $270,000 per remaining household may seem like a lot, the government stands to save $30 million if the settlement is approved. The ferry service that connects the islands to the mainland costs nearly $2.9 million a year to run. The province subsidizes 98% of the ferry’s operational costs and it was just replaced in 2011 at a cost of $28 million. Given the small population of the town, these costs outweigh the benefits from running the service. With the town only being accessible by a thirty minute ferry journey and with the average age of residents being about 67 years old, it makes for many lonely and inefficient crossings.

So, will the government adopt the 90% approval they need in order to close down the town? With the majority of residents being seniors and already retired, I’d say that most will be willing to accept the resettlement offer and the vote will pass for approval. The remaining residents will be forced to leave their lives behind and start fresh in a thriving community.