No One Can Agree On Whether There's Still Slack In The Jobs Market
Today's jobs report did little to clear things up. The BLS said we added 288,000 nonfarm payrolls in April - well above estimates - and that the unemployment rate fell to 6.3%.
But they also said the labor force participation rate dropped, and that wage growth went nowhere.
As the Federal Reserve tries to absorb all this into its policy making deliberations, they are going to have to contend with divergent views on one important question: Is there slack in the labor market?
If there are lots of workers and not many jobs, the answer is yes. If on the other hand job seekers are able to find work with relative ease, the labor market is tight.
Unfortuntately, the data doesn't do a great job of providing a clear answer.
Fed Chair Janet Yellen has indicated the Fed still sees slack.
But a chorus of economists have begun disagreeing. For the prosecution - those who say the economy looks good, and certainly much better than the Fed is saying - is Bank of Tokyo-Mitsubishi's Chris Rupkey. He maintains that the unemployment rate is still the single best indicator of the state of the labor market. So, the fact we are approaching a 5.6% "full employment" level, he says, should be making everyone feel bullish. As he wrote this morning:
This is not a labor market recovery, the economy is not healing, the economy is full on here. THERE IS NO SLACK IN THE LABOR MARKET. [caps his, bold ours - ed.] The future was uncertain until today, but now that it is certain, we got the report, the Fed needs to revise their exit strategy. In a hurry. With one giant leap this morning the labor market is closing in on full employment. ... The economy is better than you think. And Fed officials are going to raise rates quicker than you think. Bet on it.
For the defense - those who share Janet Yellen's view that there remains significant slack in the economy - is Josh Feinman of Deutsche Bank. He argues that our "scariest jobs chart in the world" chart of jobs gained since the recession is indeed still terrifying.
Ultimately, you could argue there was nothing to cause the Fed to deviate, but it also did nothing to resolve the inherent tensions between the no-slack and slackers.
"The persistence of the downward trend in unemployment, coupled with still-stagnant wage growth, will keep the lights burning late into the night at the Fed, but it will do nothing to settle the differences between the policy hawks and doves," said Pantheon Macro's Ian Shepherdson.
Seems about right.