Yesterday, in Philadelphia, Ms. Janet Yellen, chairperson of the US Federal Reserve Board, delivered a relatively simple and easy-to-understand speech on the U.S. economic outlook and the consequent outlook for monetary policy. Most commentators have interpreted her speech as a dovish one and have concluded that a rate hike by the Federal Reserve in June is not off the table. Perhaps, that is a reasonable conclusion to make, under the circumstances. It merely underscores, yet again, the difficulty of wriggling out of the commitment to keep monetary conditions extremely accommodative. After seven years of zero interest rates, if the economy were so fragile as to be buffeted by China, by the prospect of Britain leaving the European Union and by one month of weak employment numbers, members of the Federal Reserve Open Market Committee must reflect on the efficacy of their past policy actions and the current policy stance.
I have said it before and will say it again. Ultra-low interest rates and unconventional monetary policies are like extra-marital liaisons. They are easy to get into and nearly impossible to get out of or get rid of.
She dwelt at length on the employment report for the month of May. It was a seemingly weak month for job creation. The economy added only 38,000 jobs. Additionally, there were downward revisions to jobs created in the previous two months. 59,000 fewer jobs have been created in March and April than previously reported. Total non-farm payroll now averages 80,000 in the last two months and only 116,000 in the last three months.
In the household survey that measures the unemployment rate, the unemployment rate dropped by 0.3% to 4.7%. The household survey showed a 458,000 reduction in the labour force and a reduction of 484,000 in the number unemployed. On a seasonally adjusted basis, there was a big decline in the population of employed whites. About 450,000 whites had left the labour force. Measured by educational attainments, about 313,000 people with a high-school diploma or less left the labour force in May. 246,000 of those were employed and 68,000 of those were unemployed. The rest of the household survey did not paint an alarming picture with one exception, of course. Those who were employed part-time for economic reasons went up by nearly 500,000 in the month of May.
Makes us wonder if the story of May employment data was all about poorly educated white men and women becoming either part-time workers or leaving the labour force altogether. Were they joining the Trump Presidential campaign?
Otherwise, the broader unemployment rate remained steady at 9.7%. Mean and median duration of unemployment fell sharply in the month.
The Establishment Survey did paint a picture of anaemic job growth across a range of industries, from manufacturing to services. Indices of aggregate weekly hours and overtime hours were unchanged from April. However, on a non-seasonally adjusted basis, total non-farm jobs went up by 550,000 and total private sector jobs went up 697,000. After seasonal adjustment, these were reduced to 38,000 and 25,000 respectively! One wonders if seasonal adjustment factors were playing havoc again with the data.
For a central bank that is trying to restore normal monetary conditions after a long period of unconventional monetary policy, this report does not pose much of a hurdle to raising rates. But, the Federal Reserve chairperson seems to think so. Her opinion matters more than mine.
I cannot resist closing without mentioning the stock market: if the Federal Reserve were concerned about the jobs market turning weaker and if that is reason enough for them to hold back on raising rates in June, what is the US stock market doing levitating near all-time highs?