PaRT 1 RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS Domestic Developments The labor market strengthened further during the second half of 2018 and early 1. Net change in payroll employment this year∴ Monthly Thousands of jobs Payroll employment gains have remained strong, averaging 224,000 per month since June 2018 (figure 1). This pace is similar to the W pace in the first half of last year, and it is faster than the average pace of job gains in 2016 and 2017 Total nonfarm The strong pace of job gains over this period has primarily been manifest in a rising labor force participation rate (LFPR)the share of the population that is either working or actively looking for work-rather than The data are 3-month moving averages. a declining unemployment rate. Since Bureau of Labor Statistics via Haver Analytics. June 2018, the LFPr has moved up about V4 percentage point and was 63.2 percent in January-a bit higher than the narrow range it bor force participation rates and employme has maintained in recent years(figure 2). The mprovement is especially notable because the aging of the population-and, in particular, the movement of members of the baby- ^ boom cohort into their retirement years-has otherwise imparted a downward influence on the LFPR. Indeed the lFPr for individuals between 25 and 54 years old-which is much less sensitive to population aging-has Employntenl-to-population rat 1. The observed pace of payroll job gains would have been sufficient to push the unemployment rate lower had L⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥⊥」 the lFPr not risen. Indeed, monthly payroll gains in the range of 115,000 to 145,000 appear consistent with NoTE: The data an unchanged unemployment rate around 4.0 percent and an unchanged LFPR around 62.9 percent(which rate and the employment-to-population ratio are percentages of the population are the june 2018 values of these rates ). If instead SoURCE: Bureau of Labor Statistics via Haver Analytics. the lFPr were declining 0. 2 percentage point per year--roughly the influence of population aging-the range of job gains needed to maintain an unchange unemployment rate would be about 40,000 per month lower. There is considerable uncertainty around these estimates, as the difference between monthly payroll gains nd employment changes from the Current Population Survey(the source of the unemployment rate and LFPr can be quite volatile over short periods
5 Domestic Developments The labor market strengthened further during the second half of 2018 and early this year . . . Payroll employment gains have remained strong, averaging 224,000 per month since June 2018 (figure 1). This pace is similar to the pace in the first half of last year, and it is faster than the average pace of job gains in 2016 and 2017. The strong pace of job gains over this period has primarily been manifest in a rising labor force participation rate (LFPR)—the share of the population that is either working or actively looking for work—rather than a declining unemployment rate.1 Since June 2018, the LFPR has moved up about ¼ percentage point and was 63.2 percent in January—a bit higher than the narrow range it has maintained in recent years (figure 2). The improvement is especially notable because the aging of the population—and, in particular, the movement of members of the babyboom cohort into their retirement years—has otherwise imparted a downward influence on the LFPR. Indeed, the LFPR for individuals between 25 and 54 years old—which is much less sensitive to population aging—has 1. The observed pace of payroll job gains would have been sufficient to push the unemployment rate lower had the LFPR not risen. Indeed, monthly payroll gains in the range of 115,000 to 145,000 appear consistent with an unchanged unemployment rate around 4.0 percent and an unchanged LFPR around 62.9 percent (which are the June 2018 values of these rates). If instead the LFPR were declining 0.2 percentage point per year—roughly the influence of population aging—the range of job gains needed to maintain an unchanged unemployment rate would be about 40,000 per month lower. There is considerable uncertainty around these estimates, as the difference between monthly payroll gains and employment changes from the Current Population Survey (the source of the unemployment rate and LFPR) can be quite volatile over short periods. Part 1 reCent eConomiC and finanCiaL deveLoPments
6 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS 3. Measures of labor underutilization Percen U-4 4 L 」 2011 NoTE: Unemployment rate measures total unemployed as a percentage of the labor force. U-4 measures total unemployed plus discouraged workers, as a b iP the past ii months u s ginally attached workers plus total employed part time for economic rea labor force plus a rginally attached workers. The shaded bar indicates a period of business recession as defined by the National Bureau of SOURCE: Bureau of Labor Statistics via Haver Analytics improved considerably more than the overall LFPR, including a percentage point rise since june 2018 At the same time, the unemployment rate has remained little changed and has generally been running a little under 4 percent. Nevertheless, the unemployment rate remains at a historically low level and is percentage point below the median of the Federal Open Market Committee(FOMC) participants estimates of its longer-run normal level ( figure 3). Combining the movements in both unemployment and labor force participation, 2. Since 2015, the increase in the prime-age LFPR for women was nearly 2 percentage points, while the increase for men was only about I percentage point. In January, the lFPr for prime-age women was slightly above where it stood in 2007, whereas for men it was still about 2 percentage points below. 3. The unemployment rate in January was 4.0 percent, boosted somewhat by the partial government shutdown furloughed federal workers and temporarily lai off federal contractors are treated as unemployed in the household employment survey. 4. See the Summary of Economic Projections in Part 3 of this report
6 PART 1: RECENT ECONOMIC AND FINANCIAL DEvELOPMENTS improved considerably more than the overall LFPR, including a ½ percentage point rise since June 2018.2 At the same time, the unemployment rate has remained little changed and has generally been running a little under 4 percent.3 Nevertheless, the unemployment rate remains at a historically low level and is ½ percentage point below the median of the Federal Open Market Committee (FOMC) participants’ estimates of its longer-run normal level (figure 3).4 Combining the movements in both unemployment and labor force participation, 2. Since 2015, the increase in the prime-age LFPR for women was nearly 2 percentage points, while the increase for men was only about 1 percentage point. In January, the LFPR for prime-age women was slightly above where it stood in 2007, whereas for men it was still about 2 percentage points below. 3. The unemployment rate in January was 4.0 percent, boosted somewhat by the partial government shutdown, as some furloughed federal workers and temporarily laidoff federal contractors are treated as unemployed in the household employment survey. 4. See the Summary of Economic Projections in Part 3 of this report
MONETARY POLICY REPORT: FEBRUARY 2019 7 the employment-to-population ratio for individuals 16 and over-the share of that segment of the population who are working- was 60.7 percent in January and has been gradually increasing since 2011 Other indicators are also consistent with a strong labor market. As reported in the Job Openings and Labor Turnover Survey (JOLTS), the job openings rate has moved higher since the first half of 2018. and in December, it was at its highest level since the data began in 2000. The quits rate in the JOLTS is also near the top of its historical range, an indication that workers have become more confident that they can successfully switch jobs when they wish to. In addition, the JOLTS layoff rate has remained low, and the number of people filing initial claims fo unemployment insurance benefits has also remained low. Survey evidence indicates that households perceive jobs as plentiful and that businesses see vacancies as hard to fill and unemployment rates have fallen for all major demographic groups over the past several years The flattening in unemployment since mid 2018 has been evident across racial and ethnic groups(figure 4). Even so, over the past several years, the decline in the unemployment rates for blacks or African americans and for Hispanics has been particularly notable and the unemployment rates for these groups are near their lowest readings since these series began in the early 1970s. Differences in unemployment rates across ethnic and racial groups have narrowed in recent years, as they typically do during economic expansions, after having widened during the recession: on net unemployment rates for African Americans and Hispanics remain substantially above those for whites and Asians, with differentials generally a bit below pre-recession levels. The rise in LFPRs for prime-age individuals over the past few years has also been apparent in each of these racial and ethnic groups. Nonetheless. the lfpr for whites remains
MONETARy POLICy REPORT: FEBRUARy 2019 7 the employment-to-population ratio for individuals 16 and over—the share of that segment of the population who are working— was 60.7 percent in January and has been gradually increasing since 2011. Other indicators are also consistent with a strong labor market. As reported in the Job Openings and Labor Turnover Survey (JOLTS), the job openings rate has moved higher since the first half of 2018, and in December, it was at its highest level since the data began in 2000. The quits rate in the JOLTS is also near the top of its historical range, an indication that workers have become more confident that they can successfully switch jobs when they wish to. In addition, the JOLTS layoff rate has remained low, and the number of people filing initial claims for unemployment insurance benefits has also remained low. Survey evidence indicates that households perceive jobs as plentiful and that businesses see vacancies as hard to fill. . . . and unemployment rates have fallen for all major demographic groups over the past several years The flattening in unemployment since mid- 2018 has been evident across racial and ethnic groups (figure 4). Even so, over the past several years, the decline in the unemployment rates for blacks or African Americans and for Hispanics has been particularly notable, and the unemployment rates for these groups are near their lowest readings since these series began in the early 1970s. Differences in unemployment rates across ethnic and racial groups have narrowed in recent years, as they typically do during economic expansions, after having widened during the recession; on net, unemployment rates for African Americans and Hispanics remain substantially above those for whites and Asians, with differentials generally a bit below pre-recession levels. The rise in LFPRs for prime-age individuals over the past few years has also been apparent in each of these racial and ethnic groups. Nonetheless, the LFPR for whites remains
8 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS 4. Unemployment rate by race and ethnicity Black or African American Asian 8642 2015 2019 NOTE: UI ent rate measures total unemployed as a percentage of the labor force. Persons whose ethnicity is identified as Hispanic or Latino may be any race. The shaded bar indicates a period of business recession as defined by the National Bureau of Economic Research. SouRcE: Bureau of Labor Statistics via Haver Analytics. higher than that for other groups(figure 5) Important differences in economic outcomes 5. Prime-age labor force participation rate by race and persist across other characteristics as well ethnicity (see, for example, the box"Employment Disparities between Rural and Urban Areas which highlights that there has been less improvement since 2010 in the LFPR and White employment-to-population ratio for prime-age individuals in rural areas compared with anic or latino urban areas Increases in labor compensation have picked up recently but remain moderate Black or African american by historical standards Most available indicators suggest that growth of hourly compensation has stepped up further since June 2018 after having firmed somewhat pulation aged 25 to 54 persons wh are season all ar indicates a period of remain moderate compared with those thar g over the past few years; however, growth rat business recession as defined by the National Bureau of Economic Researd SOURCE: Bureau of Labor Statistics prevailed in the decade before the recession. Compensation per hour in the business sector-a broad-based measure of wages and 2/4 percent over the four quarters ending in 2018: Q3, about the same as the average ase over the past seven years or so (figure 6). The employment cost index, a less volatile measure of both wages and the cost
8 PART 1: RECENT ECONOMIC AND FINANCIAL DEvELOPMENTS higher than that for other groups (figure 5). Important differences in economic outcomes persist across other characteristics as well (see, for example, the box “Employment Disparities between Rural and Urban Areas,” which highlights that there has been less improvement since 2010 in the LFPR and employment-to-population ratio for prime-age individuals in rural areas compared with urban areas). Increases in labor compensation have picked up recently but remain moderate by historical standards . . . Most available indicators suggest that growth of hourly compensation has stepped up further since June 2018 after having firmed somewhat over the past few years; however, growth rates remain moderate compared with those that prevailed in the decade before the recession. Compensation per hour in the business sector—a broad-based measure of wages and benefits, but one that is quite volatile—rose 2¼ percent over the four quarters ending in 2018:Q3, about the same as the average annual increase over the past seven years or so (figure 6). The employment cost index, a less volatile measure of both wages and the cost
MONETARY POLICY REPORT: FEBRUARY 2019 9 o employers of providing benefits, increased 6. Measures of change in hourly compensation 3 percent over the same period, while average Percent change from year earlier hourly earnings-which do not take account of benefits-increased 3 2 percent over the Compensation per hour Atlanta Fed's 12 months ending in January of this year; the Wage Growth Tracker annual increases in both of these measures were the strongest in nearly 10 years. The measure of wage growth computed by the Federal Reserve bank of Atlanta that tracks median 12-month wage growth of individual reporting to the Current Population Survey showed an increase of 3. 7 percent in January, Average hourly earnings. near the upper end of its readings in the past 200320052007200920112013201520172019 three years and well above the average increase in the preceding few years. and have likely been restrained by slow growth of labor productivity over Changes. the daeg n s warcat 2037.m for the An much of the expansion SouRcE: Bureau of Labor Statistics via Haver Analytics: Federal Reserve Bank of Atlanta, Wage Growth Tracker. These moderate rates of compensation gains likely reflect the offsetting influences of a strong labor market and productivity 7. Change in business-sector output per hour growth that has been weak through much Percent annual rate of the expansion. From 2008 to 2017, labor productivity increased a little more than I percent per year, on average, well below the average pace from 1996 to 2007 of nearly 3 percent and also below the average gain in the 1974-95 period (figure 7). Although considerable debate remains about the reasons for the slowdown over this period the weakness in productivity growth may be partly attributable to the sharp pullback in capital investment during the most recent recession 1948-1974-1996-200 2008-2018 and the relatively slow recovery that followed More recently, however, labor productivity is estimated to have increased almost 2 percent dm8:p图 at an annual rate in the first three quarters of 2018-still moderate relative to earlier periods, but its fastest three-quarter gain since 2010 While it is uncertain whether this faster rate of growth will persist, a sustained pickup in productivity growth, as well as additional labor market strengthening, would likely support stronger gains in labor compensation 5. The Atlanta Fed,s measure differs from others in that it measures the wage growth only of workers who were employed both in the current survey month and 12 months earlie
MONETARy POLICy REPORT: FEBRUARy 2019 9 to employers of providing benefits, increased 3 percent over the same period, while average hourly earnings—which do not take account of benefits—increased 3.2 percent over the 12 months ending in January of this year; the annual increases in both of these measures were the strongest in nearly 10 years. The measure of wage growth computed by the Federal Reserve Bank of Atlanta that tracks median 12-month wage growth of individuals reporting to the Current Population Survey showed an increase of 3.7 percent in January, near the upper end of its readings in the past three years and well above the average increase in the preceding few years.5 . . . and have likely been restrained by slow growth of labor productivity over much of the expansion These moderate rates of compensation gains likely reflect the offsetting influences of a strong labor market and productivity growth that has been weak through much of the expansion. From 2008 to 2017, labor productivity increased a little more than 1 percent per year, on average, well below the average pace from 1996 to 2007 of nearly 3 percent and also below the average gain in the 1974–95 period (figure 7). Although considerable debate remains about the reasons for the slowdown over this period, the weakness in productivity growth may be partly attributable to the sharp pullback in capital investment during the most recent recession and the relatively slow recovery that followed. More recently, however, labor productivity is estimated to have increased almost 2 percent at an annual rate in the first three quarters of 2018—still moderate relative to earlier periods, but its fastest three-quarter gain since 2010. While it is uncertain whether this faster rate of growth will persist, a sustained pickup in productivity growth, as well as additional labor market strengthening, would likely support stronger gains in labor compensation. 5. The Atlanta Fed’s measure differs from others in that it measures the wage growth only of workers who were employed both in the current survey month and 12 months earlier