FINANCIAL TIMES: …The unemployment rate is tipped to edge down to 5.4 per cent from 5.5 per cent, according to analyst forecasts, pushing it closer to the Fed’s estimate of the longer-run rate of 5-5.2 per cent. That compares with a trough of 4.4 per cent back in 2006, on the eve of the financial meltdown.
Fed officials believe that as the labour market tightens, it should ignite higher wage growth. Even though the linkage between wages and inflation is pretty loose, they still see a connection, meaning inflation should get pushed back up towards the central bank’s 2 per cent target. The latest average hourly earnings figure for private sector employees was at 2.3 per cent annual growth.
An alternative measure — the wages and salaries component of the government’s Employment Cost Index — rose 2.8 per cent in the first quarter compared with a year earlier. Earnings growth has picked up strongly in the lower-wage part of the population in the past year, a sign of diminishing slack in the labour force.
The improving headline unemployment disguises a less positive side of America’s labour market story. There are still millions of people on the sidelines of the labour force, and some analysts argue policy makers including at the Federal Reserve need to do more to pull them back into work. The labour force participation rate remains at 62.9 per cent, well below the levels close to 67 per cent in the 1990s, though that decline is heavily influenced by retiring baby boomers. Elise Gould, of the Economic Policy Institute, points out that the prime-age employment-to-population ratio still remains well below pre-recession levels as well; she estimates that there are 2.8m so-called “missing workers” who are neither employed nor actively seeking work because of weak opportunities… (more)
