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Non-Tech : Kirk's Market Thoughts -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (3254)

7/11/2015 10:24:43 AM

From: Kirk ©

Respond to of 26758

From Vanguard via email this AM

Eye on the Economy:

How strong is the U.S. labor market?

More insight

Share our insight:

What we're watching
The Federal Reserve dropped its policy rate (the federal funds rate) to near zero in 2008, where it's sat through episodes of sputtering growth and evolving guidance on when the time would be right to raise it again. Now it seems that the time for a rate rise is approaching, with inflation beginning to move back towards the 2% target and a labor market that's continuing to strengthen.

The Fed's target for inflation (an annual rate of about 2%) may be some time off, but they've made clear that, rather than needing to achieve this target outright, they must be comfortable that core measures of prices will continue moving towards it. Now that last summer's steep decline in oil prices will begin dropping out of year-over-year calculations and measures of inflation expectations appear persistent, they may just be getting more comfortable.

Meanwhile, the headline rate of unemployment has improved dramatically over the past three years, to 5.3% in June, but some are still questioning the strength of the labor market.

Why it matters
The federal funds rate has far-reaching implications for the U.S. economy and globally. It can affect the rate you pay for a car loan or a mortgage, the rate a foreign investor earns when buying a U.S. Treasury or corporate bond, levels of job creation, and manufacturing activity.

Vanguard's stance
When addressing questions about the strength of the labor market, we look beyond the headline unemployment rate to other measures, including those that capture underemployment (for example, those who are working part-time for economic reasons) and the quality of job creation.

Despite rumors to the contrary, nearly all the net job creation since early 2010 has been in full-time positions. And our analysis of detailed labor market data indicates that job gains have been distributed about evenly across broad wage levels. Admittedly, growth in certain medium-wage jobs has lagged for many years, for reasons that include globalization and technological innovation, but not solely due to factors associated with the global financial crisis that began in 2008.

We believe, from the perspective of labor markets, that the appropriate time for Fed liftoff is approaching.