Federal Reserve Governor Lael Brainard said Wednesday that policymakers should not be paying attention to any single measure to evaluate the labor market, saying that a historically low unemployment number does not tell the whole story of the economy.
“There is no destination point for full employment,” Brainard told Yahoo Finance in an interview on Wednesday. “There’s no one number that you could pick and say, ‘we’re there.’”
In April, the unemployment rate dipped to 3.6%, a 49-year low. Unemployment has repeatedly fallen below economists’ expectations, and some policymakers have questioned whether or not the Fed has truly tightened the labor market to its full potential.
Minneapolis Fed President Neel Kashkari has been pretty clear.
“We’re not at maximum employment,” he tweeted in response to the April jobs report.
The labor market is being closely watched this week as the Bureau of Labor Statistics is scheduled to release its jobs report for May on Friday. In a preview of what could come, ADP released numbers on Wednesday showing only 27,000 private payroll gains in May. That figure was short of the street’s estimate of 185,000 new private payrolls as polled by Bloomberg.
Responding to that low number, Brainard said she is not concerned with one low reading.
“I don't tend to take too much signal from one particular data point,” Brainard said. “I like to put it in context and look over several months and look at that trend line.”
Coupling (or decoupling) inflation and unemployment
Brainard spoke with Yahoo Finance at a Fed-hosted conference in Chicago on Wednesday where policymakers are grappling with how they should approach the central bank’s dual mandate of maximum employment and stable prices.
Key to that review is the relationship between those two mandates. The hotly debated concept of the Phillips curve, which maps the unemployment rate against inflation, once suggested that a lower unemployment rate would come with higher inflation.
In part, this is because as employers find it harder to fill jobs, they will pay more, thus raising wages and spurring inflation.
But policymakers have acknowledged that the curve has “flattened,” since a steadily declining unemployment rate has not coincided with rising inflation.
Instead, the Fed has consistently undershot its 2% inflation target.
“We haven’t actually seen our symmetric 2% goal hit on a sustainable basis during the course of the recovery,” Brainard told Yahoo Finance.
Brainard has said in the past that the decoupling of the relationship between employment and price levels is part of the “new normal,” and presents a new puzzle for policymakers.
Anecdotally, the decoupling could be a result of forces at play that exist outside of the Fed’s measurements of unemployment and inflation. For example, the unemployment figure does not include workers who have given up on looking for a job.
The labor force participation rate, which measures all employed workers as a percentage of the total working age population, has declined considerably over the last 10 years. In April 2009, in the midst of the financial crisis, 65.7% of Americans were part of the workforce. That number has slipped to 62.8% as of April 2019.
Tightness may vary
A panel on Tuesday featured Juan Salgado, the chancellor of the City Colleges of Chicago, who questioned the tightness of the labor market given college graduate difficulty in finding jobs.
“When I hear full employment, that's not my reality,” Salgado said. “That's not our community's reality.”
Yet Brainard hinted that more workers are being pulled off of the sidelines, saying that as employers loosen their criteria for workers in this tight labor market, workers who may have given up on work are coming back in.
On the Tuesday panel, Kansas City AFL-CIO President Patrick Dujakovich said competition for work is best seen on the bumper stickers used by truck companies, which have started posting their salaries on the backs of big rigs.
“What we're seeing as the economy goes into this very extended expansion is that we're bringing people back into productive employment,” Brainard said. “And that's just a positive for those individuals, for their families, but it's also a positive for the economy.”
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.