Photographer: David McNew / Getty Images
Photographer: David McNew / Getty Images
Jerome Powell, chairman of the Federal Reserve, says he and his colleagues have learned a lot about the meaning of full employment over the past decade. Now they are looking at a new set of labor market indicators charting a recovery from the worst economic downturn on record.
Call it the Powell dashboard.
The Fed Chairman recently brought out several data points that underscore the shift from the central bank’s focus to the most vulnerable parts of the workforce, beyond the general numbers and towards the most vulnerable parts of the workforce. Understanding how long policymakers will keep interest rates around zero while assessing incoming data, including Friday’s jobs report, is an important development for Fed watchers.
Read More: US Job Growth Up Past Estimates; Unemployment drops to 6.2%
The approach marks an evolution from that of Powell’s immediate predecessor, Treasury Secretary Janet Yellen, who “dashboard ”of statistics to help determine the remaining labor market slack created by the Great Recession. It targeted Fed watchers on a range of metrics such as job openings, dismissals, underemployment and long-term unemployment that applied to the entire workforce.
In comparison, the statistics on Powell’s list include things like black unemployment, wage hike for low-paid workers, and employment rates for those without college degrees, categories that in the past took longer to recover from downturn than broader statistics.
“It’s a pretty remarkable change,” said Seth Carpenter, a former Fed official who is now the US chief economist at UBS. 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 vying for workers in every part of the income distribution,” he said.
Here are some of the numbers that Powell is watching that underscore the challenges ahead:
Black unemployment
Covid caused black unemployment to rise to 16.7% in April and May last year. In January it had recovered to 9.2%. But it reversed some of that progress last month, rising to 9.9%, according to Labor Department figures released Friday.
The Fed is under increasing pressure to recognize the uneven expansion of recent years, and the experience of the pandemic has only added to it. Powell has said repeatedly that he wants to see broad employment gains, and not just in general or in 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 consistently defied predictions of rising inflation, even as unemployment declined, indicating potential for further labor market gains. By mid-2019, black unemployment had fallen to 5.2% – a low point in nearly half a century of data.
During the 2008 financial crisis, Fed officials lowered their reference interest rates to almost zero and only started raising them in December 2015. By then the overall unemployment rate had recovered from a peak of 10% to just 5%. But they didn’t take into account the unemployment rate among black Americans, which stood at 9.4% at the time.
Low wages
As Fed chairman, Yellen often cited wage growth as a measure of progress towards full employment, including a measure produced by the Atlanta Fed in its dashboard.
In a Feb. 10 speech, Powell specifically cited pay for the bottom 25% of earners. Just before the outbreak of the pandemic in the US, wage growth for this group of workers was 4.7% on a 12-month average basis, according to the Atlanta Fed. That was the highest percentage compared to general wage growth since the late 1990s.
In January of this year, the last month for which data are available, this had declined to 4%. In the aftermath of both the downturn in 2001 and the 2007-2009 period, it took nearly three years for earnings growth to bottom out for the lowest wage quartile.
No college
Powell has also highlighted employment rates, specifically for those with no college education. The pandemic has had an outsized effect on them. According to figures released by the Department of Labor on Friday, their participation rate was only 54.7% since last month.
Compare that to February 2020, when it was 58.3%, from a low of 56.9% in 2015.
The magnitude of the job losses during the Great Recession made its recovery a slow process. Many people who were looking for work eventually became discouraged and gave up, leaving them to be considered unemployed.
Under Yellen, the Fed increased the employment rate in its analysis of the state of employment to account for the likelihood that many of the so-called labor force dropouts would take jobs when work was available. But the slow pace of the recovery fueled arguments among policymakers about whether anyone who had lost work – especially the least educated – would be able to find a new job and should therefore be factored into the deficit.
In 2015, the year Yellen’s Fed began raising rates, “many forecasters were concerned that globalization and technological change could permanently reduce employment for these individuals, and that as a result there may be limited opportunities to to participate to recover, ”said Powell. in his February 10 speech.
But the next five years proved them wrong, as people without college degrees returned to work more and more.
As the Fed Chairman put it at an event on March 4, “Today we are still a long way from our goals.”