Short-Term Unemployment Is Plummeting [Dow Jones Industrial Average, SPDR S&P 500 ETF Trust]

In action, however, we haven’t seen any significant wage or inflation pressure actually show up in the data.

Wage growth and inflation growth have not yet followed along with the hot short-term unemployment rate.

Wage growth and inflation growth have not yet followed along with the hot short-term unemployment rate.

Inflation is well below the Fed’s target 2.0% level, and wage growth has been virtually nonexistent, bouncing around 0.5% for the first half of the year.

But the real question is…

Does Janet Yellen think this is an acceptable labor market situation? In short, no. The Fed’s stand is that too much slack still remains in the labor market, according to the July release of the Monetary Policy Report:

Various labor market indicators suggest that a significant degree of slack remains in labor utilization. For instance, measures of labor under-utilization that incorporate broader definitions of unemployment are still well above their pre-recession levels, even though they have moved down further this year (figure 4). The proportion of workers employed part time because they are unable to find full-time work has similarly declined but remains elevated, and hiring and quit rates are still below their pre-recession norms. Moreover, the median duration of unemployment is still well above its long-run.

Encouragingly, the long-term unemployment rate of 1.9% as of June 2014 is the lowest level since January 2009. However, that rate still has to nearly halve to reach its long-term average of 1.0%. Long-term unemployment has been described as a “grave concern” by Fed Chair Yellen.

This article is brought to you courtesy of Jonathan Todd.

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