Update Yellen's Labour Market Dashboard

US labour market recovers further, but still indications of substantial slack

Last month, ahead of the June FOMC meeting, we introduced the Yellen’s Labour Market Dashboard. It is an overview of ten labour market indicators which Yellen referred to as important indicators when assessing the US labour market. Ahead of the FOMC meeting later this week, we provide you with an update of our Dashboard as new figures have become available.

Our first dashboard showed that, while most labour market indicators revealed obvious signs of improvement, only three of the ten Yellen indicators had reached our self‐defined target, which was mostly the 2004‐2007 average. During the last six weeks, new data have become available with the June payrolls report and May JOLTS job openings. The table below shows that five labour market indicators improved further during the month (green arrows in the 6th column), while three stabilized and two worsened. Still only three of our ten indicators have met their targets.

Concluding, labour market conditions are generally improving further, with the unemployment rate on a sustained downward trend. There are however several indicators which continue to lag behind as the U6 unemployment rate, longterm unemployment, the hires & quits rate, participation rate and wages. These indicators suggest that there is still significant slack in the labour market, more than indicated by the unemployment rate and payrolls, and justifies the Fed’s stance to keep its policy very accommodative. The Fed is however unlikely to wait to raise rates until the labour market has fully recovered and all slack is eliminated. We especially keep a close eye on the wage data, as they are often referred to as important indicators on slack. A sustained pick up in wages would be a welcome signs and might be a trigger for the Fed to start considering to hike rates, especially as inflation is picking up recently. For now however, wage data remain disappointingly weak. Will Friday’s payrolls report show any improvement in wage data?

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