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Friday, January 11, 2013

Visualizing Labor Market Improvement

David Altig at Macroblog on "summarizing the general state of the labor market":

... the employment half of the Fed's dual mandate from Congress ... has been heightened since the Federal Open Market Committee (FOMC) announced, first in September, that it will continue its asset-purchase programs as long as "the labor market does not improve substantially." But what constitutes substantial improvement is a matter of some art...

A terrific gallery that includes "a range of labor market indicators" is available at the Calculated Risk blog—you might also check out the Cooley-Rupert Economic Snapshot—but here at the Atlanta Fed, we have been experimenting with our own method for summarizing the general state of the labor market. Though this project is very much a work in progress, the idea is to highlight variables that look at employer behavior, signals of employer and employee confidence, measures of labor resource utilization, and leading indicators of labor market conditions.

As a first pass, we've organized a collection of variables we find interesting, grouped in the categories I just described. ...

We've based one prototype for how all of this information might be visualized at once on the following "spider chart" ... Here's how to read this chart: Think of each point on the inner orange circle as representing the value of each of our labor-conditions variables in the fourth quarter of 2009. ... (We've chosen 2009:IVQ as a benchmark because that's the last time we experienced two consecutive quarters of negative employment growth. You can thus think of 2009:IVQ as the quarter just before the beginning of the current "jobs recovery.")

The chart's outer dark-red circle represents the value of each of the labor-conditions variables in the first quarter of 2007—the beginning of the last recession... Moving out from the inner orange circle to outer dark-red circle tracks the progress each variable makes from its value at the end of the recession (i.e. 2009:IVQ) toward its prerecession (i.e. 2007:IVQ) level. ...

As of the December 2012 employment report, here's where we stand:


The chart tells a familiar, but not too happy, story. Only one of the variables in the collection of employer behavior, employee and employer confidence, and labor resource utilization categories has recovered even half the gap from its prerecession benchmark. The labor resource utilization variables look particularly bad, with one variable—marginally attached workers—actually getting worse over the recovery as a whole. On the brighter side, our leading-indicator variables are looking relatively strong, perhaps portending improvement ahead.

The interpretation of these spider charts comes with several caveats. First, a variable such as the level of payroll employment will eventually exceed its pre-recession level, and grow consistently over time as the population grows. A variable like "hiring plans"—which is the net percentage of firms in the National Federation of Independent Business survey expecting to hire employees in the next three months—cannot grow without bound. Thus, the charts by construction are about visualizing the transition to some fixed benchmark, not a device for monitoring labor markets over the long run.

Second, it is not obvious that 2007:IVQ levels are necessarily the best benchmarks for all (or even any) of the variables we are monitoring. ...

Finally, signs of labor market improvement sufficient to alter the pace of FOMC asset purchases may be more about momentum or steady progress than about the return to a specific target or threshold. In fact, this chart depicts signs of such progress over the past three years...:


...but that progress has been very modest in some cases, notably along labor utilization dimensions.

    Posted by on Friday, January 11, 2013 at 12:24 AM in Economics, Unemployment | Permalink  Comments (5)


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