Update Yellen's Labour Market Dashboard

Labour market recovery continues, despite poor payrolls

Ahead of next week’s FOMC meeting, we provide you with an update of our Labour Market Dashboard to give you an overview of the latest developments in the US labour market. Last week’s August payrolls report brought a major disappointment with employment growth slowing to 142 000. The household survey, on the contrary, showed further signs of improvement, while also the July JOLTS report remained strong. Therefore we don’t draw firm conclusions from the headline payrolls reading and believe that the August figure was an outlier. As a result however payroll employment dropped below our self‐defined target (average of the 2003‐2007 period), but due to the volatility of the data, it might be preferable to look at the 6‐month moving average, which is still well above our target. In the concept of our report however, only two of our ten labour market indicators have met their targets, instead of three in our previous report. In addition, the table below shows that three labour market indicators improved further during the month (green arrows in the 6th column), while five stabilized and two worsened. Although it is slightly less robust than in our previous report, it still confirms that the US labour market continues to gain strength.

At the Jackson Hole symposium, Fed Chairwoman Yellen again pointed to the importance of wage figures. As it is not a good idea to look only at one single indicator, we have added at the end of the report a few other wage indicators, which might give a more complete view on the latest developments in wage figures. Although the most popular wage indicator, average hourly earnings Y/Y (AHE), fails to show any signs of improvement yet, other indicators show a more mixed picture. The employment cost index picked up sharply in Q2, wages of production and non‐supervisory workers are recovering for already some time and also small businesses reported significant increases in compensations. We believe therefore that also the AHE index might soon start to pick up.

Concluding, despite the very modest increase in payrolls, our Dashboard confirms that the US labour market recovery continues and is even broadening, with especially the strong downtrend in the longer‐term unemployed share encouraging. More and more Fed governors recently admit that labour market conditions are rapidly improving, although the poor August payrolls might be an excuse for the Fed to emphasize again that there remains uncertainty on the amount of slack.