U.S. jobless claims rose 8,000 to 339,000 last week. The Bureau of Labor Statistics reported last Friday that the economy added a lackluster 113,000 jobs in January but the unemployment rate dropped to 6.6%.
This week when Janet Yellen testified before House lawmakers we learned more about how she's thinking about the labor market. In her prepared remarks she pointed to concerns including the long-term jobless as well as part-time workers who would like more work. (Yellen's Senate testimony was scheduled for today but was postponed due to the weather).
And during her testimony, she indicated she believes the increase in unemployment since the financial crisis is cyclical -- meaning due to the business cycle and related to demand.
"The reason that's important is if you think it's cyclical, then you think monetary policy can help," says Jim Rickards, author of bestseller Currency Wars and the forthcoming Death of Money. That's opposed to structural unemployment which is longer-term and due to fundamental shifts in an economy.
"If you think it's all structural than monetary policy cannot help," and you would have to employ fiscal and regulatory policies, for example, that are mostly in the hands of Congress.
Rickards view is that trouble in the labor market is almost 100% structural: "The Fed has been using monetary easing for five years and it hasn't really worked." He concedes that unemployment has fallen substantially but that many of the jobs created are low-wage part-time jobs.
Another key aspect of the labor market story is the decline in the labor force participation to a 35-year low. Yellen told lawmakers while a significant part of this decline is structural due to demographics, she said some of it may be cyclical and she pointed to prime working-age men falling out of the workforce.
Rickards says his central banking sources believe Yellen is very focused on the labor market with real wages as her metric (as a proxy for slack in the labor market).
He also points to a paper co-authored by Andrew T. Levin, who Rickards says he's told is Yellen's "go to" economist on labor issues. The paper makes the point that the difference between unemployment and being out of the labor force is not just statistical: if you are unemployed you are job ready, if you're out of the labor force it takes greater inertia and a lot more monetary policy to get people off the couch and back in the labor force.
"The conclusion is, you need a lot more monetary easing to move the needle and that's what [Yellen's] thinking and focused on," Rickards asserts.
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