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By HaleStewart March 11, 2015 8:06 am
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US Labor Market Statistics Indicate This Is NOT The Time To Raise Rates

    The Federal Reserve has a dual mandate: price stability and full employment.  With the inflation rate far below the Fed’s 2% target, price stability has been achieved – at least for now.  But with the unemployment rate at 5.5%, some commentators believe that we are at or very close to full employment, giving the Fed room to begin raising rates.  It is this belief that led to the recent stock market sell-off.  But, the Fed now looks at a far broader range of employment statistics, which means we should too.  And, in taking that broader look, we’re not at a place where the Fed should raise rates. 

     Beyond the U3 rate (the 5.5% number cited above), the job market is still in less than full employment shape.  For example, consider the U6 rate, which includes a far broader swath of people who are unemployed:

Although obvious gains have been made with a fall from ~17 to ~11, the current level is still above the worst rate of the last recession.  And, it’s still at high levels when compared to the 1990s recession.

     And consider the number of people unemployed for 27 weeks or longer:

This number peaked at 7 million right after the worst of the recession.  And, like the U6 number, it has made some progress.  However, at its current level of just below 3 million, it is still nearly 1 million over its worst levels of both the 1990s expansion and early 2000s expansion.  And this data series is now just at the worst level of the early 1980s recession.

     Then there’s the average and median weeks of unemployment:

The average number (which is obviously skewed by the still large number of people unemployed over 27 weeks) is still a full 10 weeks above its worst reading in a little over 40 years.  And the median weeks of unemployment is just now approaching its worst level in 40 years.

     Also of importance is the employment/population ratio:

While at least half (if not more) of this drop was caused by the aging US population, the remainder of the drop is caused by people leaving the labor force.  But, as they see the unemployment rate drop, they’ll start to re-enter the labor force, which will slowing increase this indicator.

     And then there’s the poor wage growth scenario, which NDD covered in detail yesterday.

     Inflation has been a non-issue for the duration of this expansion – more so now with oil’s massive sell-off.  And broader measures of the labor market show there is still a great deal of slack – which is confirmed by the weak labor numbers.  The combined total of this information is that the Fed shouldn’t be raising rates, even with a low unemployment rate.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer  

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