A few points on slack

A debate has broken out over just how close America is to full employment: over how much slack there is in labour markets. I recommend comments on the subject from Tim Duy and Cardiff Garcia. I’ll make a few points here. And I’ll number them. Why not.

1) The labour market is tightening, as it has for at least the last two years, but it is objectively not tight. The New York Fed has helpfully released an online labour-market dashboard tracking several dozen indicators, and the picture that emerges is pretty clear. Things are mostly moving in the right direction, but across several key variables that improvement has merely pushed the labour market back to where it was in the depths of the last two recessions. The Fed’s latest projections show the economy reaching full employment in 2016. That’s probably the modal estimate among forecasters, and I would say that it is difficult to characterise an economy which is two years out from full employment as facing a tight labour market.

2) Having said that, we are approaching the point in the business cycle at which the Fed would historically begin tightening policy. As Mr El Rhazi…Continue reading

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