The jobs numbers released this week provide a sobering view of the pace of the recovery and provide clear evidence as to what we can expect from the FOMC.
The Committee’s new strategy focuses on ensuring maximum employment, with policy designed to minimize downside deviations from that what the Committee views as full employment. The employment data released last week reveal a decline in economic activity. New claims for unemployment insurance remain high at 787,000. More than 10.7 million people remain unemployed; the unemployment rate held steady at 6.7% (and even the BLS argues that this is an underestimate); those on temporary layoffs increased some 277,000 to 3 million; and we are still short about 11 million jobs from where they might have been but for the pandemic. The overall labor force participation rate remained constant at 61.5%, while the rate for those aged 25 to 54 ticked up from 80.9% to 81%. The overall rate is below its level of 66.1% before the Great Recession began to take hold in 2008 indicating that a number of workers are discouraged and have withdrawn from the labor force.
Finally, Friday’s CES employment numbers for December, shown in the following chart, reveal a continuation of the steady decline in job creation from the peak achieved in June. Friday’s jobs numbers showed an actual decline of 140,000 jobs. Moreover, the declines were very heavily concentrated in a few industry segments. Leisure and hospitality lost 498,000 jobs; the amusement segment lost 92,000 jobs; the hotel and accommodation sector lost 24,000 jobs; education lost 63,000 jobs; and the government sector lost 45,000 jobs. All these losses reflect the impact of the COVID-19 pandemic and the decline in revenues that went with the falloff in economic activity.
What will these numbers mean for the FOMC as it has its first meeting of the new year at the end of January? Since the Committee will not have any new data on the jobs situation except for new claims for unemployment insurance, it seems clear that the trends are not consistent with the Committee’s making substantial progress on its full employment objective. Thus, despite the fact that some commentators are arguing that there may be movement towards less accommodation in the Fed’s asset purchases and forward guidance, the data just doesn't support any moves to reduce the degree of policy accommodation the Committee has put in place nor any or changes in guidance at this next meeting.
Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
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