Is The “Full Employment” Meme A Myth?

I talk to a lot of folks (both pros and retail guys/gals) about markets and, more generally, the state of the economy. One of the most common threads seems to be a general sense of incredulity regarding the whole “full employment” meme.

While everyone has their own explanation for doubting the official data, most people seem to share this kind of gut feeling that this economy just doesn’t feel like it’s hitting on all cylinders.

Here’s all you need to know, summarized in one excerpt, three charts, and one video.

Goldman thinks the data is consistent with full employment…

At 4.6%, the headline unemployment rate now stands a touch below our 4.7% estimate of the structural rate. While broader underemployment captured by the U6 rate has been disproportionately elevated for much of the recovery, the gap has now narrowed. Exhibit 1 decomposes our preferred estimate of broad labor market slack into the three components of U6: the unemployed, involuntary part-time workers, and the marginally attached. Following a 0.6pp decline in the U6 rate over the last year, our measure now suggests that only a few tenths of broad slack remains in the form of somewhat elevated involuntary part-time employment and a slight participation gap.

For a closer look, we review a dashboard of labor market indicators to assess Chair Yellen’s verdict that the labor market is now “roughly comparable to 2007 levels.” Exhibit 2 compares the current values of a range of slack, wage growth, dynamism, and labor market tightness indicators to their 2007 averages.

…and they’ve got the charts to prove it…

goldman1

goldman2

…just don’t mention this…

labor

…and if you do mention that, don’t expect Yellen to have any answers…


 

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