Do We Have Liftoff?

by: Zach Bethune, Thomas Cooley, Peter Rupert

The minutes for the June 17-18 meeting of the FOMC revealed a discussion about the end of bond purchases in October but only a vague notion of when liftoff might occur. Many believe that “slack” labor market conditions are still a concern:

In assessing labor market conditions, participants again offered a range of views on how far conditions in the labor market were from those associated with maximum employment. Many judged that slack remained elevated, and a number of them thought it was greater than measured by the official unemployment rate, citing, in particular, the still-high level of workers employed part time for economic reasons or the depressed labor force participation rate.

The first estimate from the BLS establishment survey reports total non-farm employment increased by 288,000 in the month of June and  the prior two months have been revised up by an additional 29,000. Here are our takeaways:

Monthly employment growth continues to be strong(ish).


The employment gains were broad-based.

All major BLS sectors (goods, services and government) added jobs in June. The next two charts illustrate these gains. The width of the bars represents the weight of each industry in total employment. For instance, employment in trade, transportation and utilities represents about one-fifth of all U.S. employment whereas industries like information or mining make up a much smaller fraction.


In June, every industry with the exception of ‘other services’ added jobs. As you would expect from a healthy labor market, the largest job gains predominantly came from the largest sectors with trade, transportation and utilities and professional and business services adding a combined 139,000 jobs.


Over the year, the story is similar. The largest four private sector industries have led the growth in employment. Of course government is a glaring exception.

Unemployment dropped for (almost) all the right reasons.

The unemployment rate dropped to a post-recession low of 6.1%, and it dropped for all the right reasons because the unemployed found jobs instead of leaving the labor force. Both the labor force participation rate and the employment to population ratio held steady. The only cautionary note is that a large number of the job gains were from involuntary part-time jobs. These are households that would like to have a full-time position, but could only find part-time work.

The recent trend in the job finding rate, those going from unemployment to employment, since the beginning of the year continued. The largest gains were recorded from the short-term unemployed workers.


The index of average weekly hours for private sector employees has continued to climb steadily.

Unemployment and unemployment claims continue to fall.

The unemployment rate and the “U6” unemployment rate (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force) have fallen substantially, yet remain elevated relative to pre-2007.



Initial claims are now near their pre-2007 level.


Job vacancies have shot up lately.

According to the Job Openings and Labor Turnover Survery (JOLTS) job openings have shown a large spike up. The hiring rate, however, is still somewhat subdued.



But long-term unemployment remains a problem.

The fact that mean unemployment duration has risen much more than the median indicates there are many more unemployed for 27 weeks or longer.


Wage growth has been tepid.

Nominal wage growth has slowed and real wages grew mainly due to a fall in inflation…but due to the recent tick up in inflation, real wage growth is close to zero.

Again, from the FOMC minutes:

Aggregate wage measures continued to rise at only a modest rate, and reports on wages from business contacts and surveys in a number of Districts were mixed. Several of those reports pointed to an absence of wage pressures, while some others indicated that tight labor markets or shortages of skilled workers were leading to upward pressure on wages in some areas or occupations and that an increasing proportion of small businesses were planning to raise wages. Participants discussed the prospects for wage increases to pick up as slack in the labor market diminishes.


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