Fed Researchers Say Labor Recovery in U.S. May Soon Accelerate

Improvement in the U.S. labor market may soon speed up, building on gains during the past year, Federal Reserve researchers said, citing six employment indicators.

“The recovery in the labor market is robust, broad-based, and likely to continue, if not accelerate, over the coming months,” Mary Daly, Bart Hobijn and Benjamin Bradshaw, economists at the San Francisco Fed, said in a research note published today. “Whether this increase in momentum amounts to a ‘substantial improvement’ in the outlook for the labor market is a question for policy makers to decide.”

U.S. central bankers are debating when to begin tapering $85 billion in monthly bond purchases after saying last month they wanted to see more evidence of sustained economic strength. The Fed has pumped up its balance sheet to $3.76 trillion and has pledged to press on with so-called quantitative easing until the job market improves “substantially.”

“The labor market is improving along a variety of dimensions, not just a few isolated measures,” according to the San Francisco Fed researchers. “Labor-market activity is beginning to converge to levels consistent with past recoveries rather than continuing at the highly suppressed pace that has defined the past few years.”

The San Francisco Fed researchers examined 30 indicators, six of which are “excellent” predictors of the future unemployment rate, they said. Those are the insured unemployment rate, initial jobless claims, capacity utilization, the Institute for Supply Management manufacturing index and private payroll growth.

The researchers also reviewed the difference between the ratio of households that consider jobs hard to get and the ratio that consider jobs plentiful, taken from the Conference Board’s Consumer Confidence Survey.

The six “indicators show the pace of the labor-market recovery has increased compared with a year ago,” according to the researchers.

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