The important takeaway from the February 1 BLS Employment Report is that good-producing wage growth was remarkably low. No one data point should cause you to change your view radically. But it is yet another brick in the wall of evidence that the Federal Reserve has been massively underestimating how much slack there is in the U.S. economy by focusing on the unemployment rate. The current employment-to-population ratio is 60.7%. The prime-age rate tells us that we should probably adjust that upward by 2.1% to take account of population aging over the last two decades. That tells us that the labor market is still slack relative to its state in the late 1990s to the extent of a full percentage point or so. We should not expect to see higher inflation now—and the Fed should not have tied itself to the mast of using the unemployment rate as thecyclical variable over the past decade. Dan Alpert brings the main course. Karl Smith, Ryan Avent, Nick Bunker: Dan Alpert: Dan Alpert on Twitter: "Hourly and weekly wages for literally all categories of goods producing jobs took a huge tumble last month-down 13 cents/hr or 0.45% on average M/M. Its good :-( that there are so few of them or wages across the board would have plummeted! This is huge news!...
...Karl Smith: @karlbykarlsmith: There is no evidence of increasing inflation in the wings. What this shows is that the potential labor force is larger than the models suggested. That is a result we've seen repeatedly confirmed by multiple independent measures of slack. #ourFullPotential...
Ryan Avent: @ryanavent: We'll see where it ends up after revisions; probs not far from 2018 trend. But when you're adding jobs like this ten years into the expansion, you're not at full employment. Would have been cool if the Fed had allowed the economy to create some of these jobs a few years ago! This kind of jobs report at this point in the cycle means the Fed did a bad job, not a good job. Still have to just stand back and marvel at this kind of job growth, a decade into the expansion, with inflation under 2% and 30-year bonds at 3%. I understand that political constraints that applied at the time, but man would it have been nice to have been rolling out a several trillion dollar package of infrastructure upgrades, green investment, etc over the past decade. Pivoting to deficit reduction = one of the great missed economic opportunities ever...
Nick Bunker: @nickbunker_: If anything payroll growth still this high signals a bit more slack in labor market and that we’re still not at “maximum employment”. That would supports the dovish turn...
Joe Weisenthal _@TheStalwart**: I take the exact opposite view. The new jobs data shows that we've been massively underestimating the amount of slack in the economy and therefore the Fed should be cautious about further hikes when there are so many people out there who still want to work. When the pace of jobs growth slows to 100k, the LFPR plateaus, and wage growth starts accelerating past pre-crisis levels, let's talk about the labor market getting too tight or too hot...
Note to Self: The gap between the prime-age and the overall employment-to-population ratio has widened from 17.0% to 19.1% over the past two decades.
#noted
