Federal Reserve's Daly: The "Rule of Thumb" in the Labor Market Is Being Rewritten Zero employment growth doesn't necessarily mean weakness

Friday (April 3), U.S. March nonfarm payroll employment data was released, and the U.S. Bureau of Labor Statistics disclosed a report that was broadly better than what had been expected in advance.

The report showed that nonfarm payroll employment increased by 178k in March, versus expectations for an increase of 65k. This figure bounced back from February’s newly revised decrease of 133k, and it came close to the record of 160k new jobs set in January; the unemployment rate fell to 4.3%, versus 4.4% expected.

That day, Mary Daly, president of the Federal Reserve Bank of San Francisco, said the U.S. economy no longer needs to create large numbers of jobs, as it did before, to maintain the share of the population that is employed. She noted that changes in government policy led to a decline in immigration numbers, which in turn brought labor force growth close to zero—meaning that the “rule of thumb” previously used to gauge the health of the labor market is now changing.

She believes that in this environment, monthly hiring data no longer accurately reflects the health of the labor market. Zero job growth can still be seen as a normal state, and the unemployment rate may be a better measure.

U.S. Federal Reserve Governor Chris Waller has also recently pointed out that employment growth could be zero. And because changes in immigration policy mean the labor market is not expected to grow this year, the unemployment rate may still remain stable, allowing the labor market to continue to be viewed as being in balance.

Looking ahead, Daly said relying solely on the employment growth metric is unlikely to be a good standard for assessing the health of the job market. She is more inclined to use indicators such as the ratio of employed persons to total population, the unemployment rate, the quit rate, and the hiring rate. She believes these indicators can reflect changes in the size of the labor force and can more accurately reflect the state of the labor market.

In addition, Daly said that even when various confidence indexes are low, the data show no signs that the labor market is worsening—“this is very reassuring.”

She added, “This gives us more time to balance risks, and the current level of monetary policy is just right for carrying out this work.”

(Source: Caixin Global)