Fed Chair Jerome Powell proposed a methodology that factored in labor force declines due to Covid. I replicate the idea.
Powell Calculation
I discussed Powell's adjusted unemployment rate on March 2, in How Did the Fed Conclude the Real Unemployment Rate Was 10% in January?
As you can see, I came up with nearly the same chart via the methodology described in the above link.
Private Payroll Rise a Whopping 465,000
Earlier today I noted Private Payroll Rise a Whopping 465,000
The BLS put the official unemployment rate at 6.2% whereas the labor-force adjusted unemployment rate is 10.0%.
Labor Force and Projected Labor Force
The Wall Street Journal comments Better Job Market Not Nearly Good Enough for the Fed.
Given Powell's repeated comments regarding the labor force, I certainly agree.
By my calculation, the labor force is 5.8 million below the number Powell seeks, and 4.2 million below the February 2020 pre-Covid labor force of 164.4 million.
The labor force is a moving target. It has been on a steady increase at the same average monthly rate since the beginning of 2016.
I believe Powell used a similar methodology or the charts would not align as much as they do.
Fed Hubris
Although I agree with Powell that the unemployment rate is hugely understated, I disagree strongly with the Fed's approach to deal with it.
This material is based upon information that Sitka Pacific Capital Management considers reliable and endeavors to keep current, Sitka Pacific Capital Management does not assure that this material is accurate, current or complete, and it should not be relied upon as such.
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