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Sunday, November 6, 2016

Quick Comment On The U.S. Labour Market

Chart: U.S. Employment-to-Population Ratio

Given the focus on the U.S. election -- a topic that I prefer to avoid commenting on -- I am keeping this article brief. I just wanted to post a couple charts on the U.S. labour market. I see little sign of any form of overheating, but a rate hike in December seems to be in the cards. The only question is when any follow up rate hikes will happen; September-December 2017 is probably the best bet (in the absence of a recession).

The employment-to-population ratio (above) has stalled out in March, although in retrospect that surge may have just been noise on top of the underlying trend. In any event, the employment-to-population ratio is well below the level of the previous cycle.
Chart: LMCI

Wider measures of the labour market also indicate we are far from overheating. For example, the "Labor Market Conditions Index" has stopped rising (the chart above shows the one-month change in the index). I discussed the index in this article; my argument was that the index construction method appears reasonable, but the problem is that the U.S. labour market is segmented. Some professions are doing well, and there are less available workers, but there is considerable softness in the lower skill segments. It is difficult for a single indicator to capture such diverging trends.

(c) Brian Romanchuk 2016


  1. Brian, consider your moment of death and what goes through your mind then. You really want to be the guy who chose not to comment on the US election? You are more focused on the wisdom of accounting identities and keeping discussions of money out of macroeconomics. I knew you when you were young. And enjoyed your company. Aim higher, bro.

    1. As a Canadian, I cannot vote. I would not appreciate Americans telling me how to vote, and I am returning the courtesy. In any event, I doubt that my endorsing any candidate is going to make any difference in the polling results...

      I am also not particularly concerned about the presidency; the US is supposed to be a republic, not a monarchy. I realise that has been slipping in recent decades, but my reading of the situation is that Congress will end up Republican controlled, and is not going to roll over for either candidate.

  2. Let me get this right the third time around (sorry, needed some coffee to wake up). Good comment Brian, wish you wrote it on Friday morning as opposed to Sunday but it makes the same point as Warren Mosler who also thinks the long-term trend doesn't suggest the US labor market is overheating. I talked about it my latest blog comment. And never mind Gerard's "aim high" nonsense, if he likes wasting his time writing frivolous comments on American politics, let him. He will soon realize that it won't matter much who the next US president is be but he will make a big stink of how ignorant I am to say such a ridiculous comment. Anyhow, I agree with Taleb, both candidates are deeply flawed but Trump isn't as scary as people think and all this talk of America's Brexit moment is pure nonsense as Trump still needs a miracle to win:

  3. Ran some tests. The LMCI provides no additional information to simply taking the first difference of the unemployment rate.

    Makes no difference to the above argument. Just an FYI.

    1. Sounds reasonable. The advantage of a composite indicator is that it would be robust to a single variable "blowing up" - for example, a change in methodology for calculating the unemployment rate. Also, it helps reduce the arguments at firms that feature "dueling chart packs". (Not a problem for a one person shop like me, but an ongoing headache at places with more than one economist/strategist.)

    2. Yeah, I have no serious problem with it. But it's not what I first thought it would be. Info:


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