US job market slack complicates Fed rate decision
Lack of information means Fed may have more difficulty gauging the right time to raise rates
Federal Reserve policymakers are missing a key element as they assess the health of the labour market: data that includes whether those who are employed are overqualified for their job or would like to work more hours.
As a result, the "significant underutilisation of labour resources" that Fed officials highlighted last month as they renewed a pledge to keep interest rates low for a "considerable period" is probably even more severe than currently estimated. And the information gap means policy makers may have more difficulty gauging the right moment to raise rates off zero.
"We have more slack than the official statistics suggest," said Michelle Meyer, a senior US economist at Bank of America in New York. "Because it's difficult to measure underutilisation, there's still a lot of uncertainty as to how much slack remains, which means there's uncertainty as to the appropriate stance of monetary policy."
The Labour Department can put its finger on how many people are working part-time because full-time jobs aren't available, or how many are so discouraged that they're not even looking for employment. Other forms of underemployment - for example the graduate with an English degree who's working as a barista - are harder to pinpoint though just as important in trying to measure whether the labour market has improved.
Erica Groshen, commissioner of the Bureau of Labour Statistics, asked what additional data would be needed to help quantify labour-market slack.
Betsey Stevenson, a member of US President Barack Obama's Council of Economic Advisers, said that while it was possible with current data to determine whether people working less than 35 hours a week are underutilised, those putting in a longer workweek fall off the radar.
The BLS considers anyone working at least 35 hours a week to be full-time. The Census Bureau, which surveys households to get the information needed for the Labour Department to crunch the monthly jobs data, doesn't ask full-timers whether they'd prefer a different job or additional hours. As far as anyone knows, those workers are fully employed and content.
Payroll gains that are shaping up to be the strongest since 1999, combined with a jobless rate that fell to a six-year low of 5.9 per cent in September, add to the confusing job-market signals. Joblessness is approaching the 5.2 per cent to 5.5 per cent range that Fed officials consider full employment even as the share of people unemployed for 27 weeks or more remains higher than at any point prior to the recession that began in December 2007.
With the BLS' budget tight, economists may be forced to make do with current data. Even if new survey questions were to be introduced, the lack of history means it would probably be of little use in the near-term.
