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

On Friday (April 4), the U.S. March nonfarm payrolls data was released, and the U.S. Bureau of Labor Statistics disclosed a report that was overall better than the pre-consensus forecast.

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

That day, San Francisco Fed Chair Mary Daly said the U.S. economy no longer needs to create a large number of jobs, as it did in the past, in order to maintain the proportion of the population that is employed. She noted that changes in government policy have led to a reduction in immigration, causing labor force growth to approach zero—meaning 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 is no longer an accurate reflection of the labor market’s health. Zero job growth can still be viewed as a normal condition, and the unemployment rate may be a better measure.

Fed Governor Chris Waller has also recently pointed out that employment growth could be zero, and that because changes in immigration policy mean the labor market is not expected to grow this year, the unemployment rate could therefore remain steady, allowing the labor market to still be seen as being in balance.

Looking ahead, Daly believes that relying solely on the employment growth indicator is unlikely to become 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 the total population, the unemployment rate, the quit rate, and the hiring rate. She said these indicators can reflect changes in labor force size and better capture the state of the labor market.

In addition, Daly also said that even when confidence indexes are low across the board, the data shows that the labor market is not exhibiting signs of deterioration—“which is very reassuring.”

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

(Source: Caixin)