A Bank of America Merrill Lynch research note on the abysmal nonfarm payrolls number for June contained this graph:

A February 2010 Big Picture post on slack in the labor market contained this graph:

My comment at the time, which holds true today:

I’d postulate that only when this gap starts to close meaningfully will we have to consider the possibility that the Fed will tighten and/or that inflation might be somewhere out there on the horizon.  Until then, it’s very hard to envision they’ll consider moving off their ZIRP.

Category: Data Analysis, Economy, Employment, Research

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Read It Here First: Labor Market Slack”

  1. krow10 says:

    Stupid question: is the Fed interest rate specific to wage inflation or could high energy prices influence that? More clearly — does the Fed interest rate affect inflation driven by high energy prices?

  2. swag says:

    via Duncan Black, I read this this morning and get sick to my stomach at its plausibility:


    “It was something at least reasonably credible that described a meeting Obama had with some multinational type, who carefully explained to him that he had to break the back of the American economy, driving us down to a low-wage, low-benefits society — so we could compete with Third World countries for jobs.

    And you know, I really do think this is what is going on. The Harvard guy, easily impressed by the elites, dazzled by the fact that he’s one of them, and a man without clearly defined goals or vision, bought that version of reality.

    Rather than do the hard work of bringing other countries up to our standards, he’s decided we have to be broken. And he thinks it’s what’s “best” for us. He’s doing it because he cares. He sees social programs as simply postponing the the day when the workers (not the special people, like him and his friends) are living in tin shacks without running water, and he wants to wean us off the safety net.”

    more at link.

  3. Topspin says:

    Countries either live within the boundaries of their resources or trade. There is not in between. Given that there must be price parity between incomes and production. $45k meet $4k.

    I think many white people in America thought they could use foreigners and keep the disparity in wages to their advantage just as they have been able to do with black people for generations. It’s not working that way. Why? Think about it.

  4. Topspin says:

    “In 2004, the median net worth of white households was $134,280, compared with $13,450 for black households, according to an analysis of Federal Reserve data by the Economic Policy Institute. By 2009, the median net worth for white households had fallen 24 percent to $97,860; the median black net worth had fallen 83 percent to $2,170, according to the EPI.”


  5. doug says:

    “something at least reasonably credible”

    Mr. Swag, the poor woman doesn’t even site what it was she ‘read’. Perhaps it was a dream….

    Lots of BS is plausible …..

  6. philipat says:

    Many respected commentators such as Rosenberg have been forecasting this for some time, so it really should come as no surprise? Clearly, Rosenberg is a fine commentator on the economy but, equally claerly, there is a disconnect between the economy and the equity markets. But perhaps not? David’s thesis has been that the equity markets have been a “Bubble” created by QE1/2/2.5 and that, therefore, Treasuries were the place to be. Perhaps it’s now a bit late in the game for either arguement?

    So, back to Gold?

  7. efrltd says:

    There’s a problem with this graph–It doesn’t show wages are down. Wages still increase, just by not as much. The catch is that the unemployment scale is inherently negative, without a minus sign, but it is. The graph however shows change in hourly wages, inherently on the positive side. If wages were dropping that line would fall through the floor of the graph. Superimposing one on the other is probably not good because it comes up with misinterpretation of reading the hourly wage in the same terms as unemployment, “NOT employed.”

    Invictus: Your comment immediately brought to mind this fresh post by Krugman on exactly the issue you raise.

  8. RW says:

    Until that gap starts to close meaningfully it won’t really matter if the Fed sticks with ZIRP or not, interest rates and inflation will remain low and fall lower; e.g., 4-week T-bills auctioned at 0.000%

  9. pintelho says:

    It would be a great exercise to make a chart with the spread between these two lines over layed onto the Fed Funds Rate for this period.

    Just for Shits and Giggles you know..

    Thanks again for your great work.