The “real-feel” unemployment rate

Posted by on February 20, 2014 @ 3:00 pm in Economy & markets

The current employment rate really doesn’t truly represent the amount of slack in the economy, Chief Economist Joe Davis says.

Transcript:

In my mind, the current unemployment rate, which is below 7%, 6.7%, is very likely not
representative of the amount of slack or excess supply and also weak demand in the labor
market. The biggest reason for that is the number of Americans that have dropped out of
the labor force because they may not be actively looking for work. And so by our estimates,
part of that drop is more cyclical, which means it’s not permanent. And so by that measure,
the so-called real feel unemployment rate may be closer to 8%, 8.5%.

If one takes that into consideration, as well as the fact that inflation is fairly low and lower
than where the Federal Reserve wants it, that would imply that the Federal Reserve could
very likely be on hold through, easily, 2014 and through most of 2015. And so by that
measure, their interest-rates-at-zero policy stance is more than warranted.

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