Philips Curve, Alive And Kicking
BNP Paribas | Oct 09, 2016 04:54AM ET
- Another month of strong payrolls growth
- Unemployment rate edging up
- Wages re-accelerating
In the US, September labour market report was the perfect illustration of the Fed’s main story: a continued support to the economy is possible without inflationary pressures as the labour market still has room for absorbing new entrants (or re-entrants). Over the month, and despite six years of continuous expansion in non-farm payrolls, the US economy created 156k new positions. At the same time, the unemployment rate edged up to 5% (from 4.9% over the three previous months).
The reason behind these conflicting developments: the labour participation ratio kept on rebounding, reaching 62.9% in September. In essence, this is what Janet Yellen told at the end of the most recent FOMC meeting: “the strong labor market is attracting people from outside the labor force back into employment”. This also means that the Philips curve may be neither dead nor flat, but that the correct measure of labour market tensions is not the usually followed unemployment rate, the BLS’ U3 definition. For some time, we have been presenting our own measure of underemployment, the Slack Index.
Interestingly, in early 2016, it had stopped improving, even though the labour market dynamism was as true as ever. At the same time, wage growth was stagnating. Recently, our Slack index regained some momentum. And so did wage growth. Measured by the year-on-year rate of growth in hourly earnings of nonsupervisory production workers of the private sectors, wage growth was 2.7% in September, the best reading for seven years…
by Alexandra ESTIOT
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