Understanding the Fed’s Perceptions of US Labour Market Conditions
The Phillips Curve remains at the heart of the Fed’s econometric model of the US economy. Low inflation has resulted in critics claiming that the inverse relationship between unemployment and inflation is invalid, thereby rendering the Phillips Curve useless as a policy guide.
Some commentators claim that a rising number of multiple job holders reflect a weak economy. History suggests, however, that falling numbers of multiple job holders are effectively a leading indicator of recession.
Non-farm payroll growth remains in excess of labour force expansion, thereby imparting downward pressure on the unemployment rate. Temporary help service payrolls are expanding above aggregate private sector job creation, implying that an impending US recession is unlikely.
Low levels of initial unemployment claims indicate that layoff activity in the US is extremely muted. Meanwhile, the downward trajectory in the insured unemployment rate suggests further declines in the civilian measure during the coming months.
Fed Chair Yellen attempted to gauge labour market conditions with a newly-devised composite measure that has subsequently been discontinued. Her favoured measures of labour underemployment have, however, continued to show signs of improvement.
US small business optimism recovered in July after recent moderation following the Presidential Election. The National Federation of Independent Businesses (NFIB) is reporting an ever-rising incidence of skill shortages and lack of suitable job applicants, potentially imparting bearish implications for monetary policy.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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