The Fed and the Job Numbers: The Fed Looks at the Establishment Survey

Catherine Rampell had an interesting discussion of the Fed's likely course of action at its September meeting based on the July numbers. While the piece acknowledged the July jobs number from the establishment survey was somewhat better than expected, it concludes that the Fed is likely to move based on the weakness of the data from the household survey.

I'd have to disagree with that assessment. The household survey is far more erratic than the establishment survey. For example, it shows a jump of 422,000 jobs in May. Anyone remember that boom? Last June it reported a drop of 423,000. In August and September the household survey showed a combined gain of 657,000 jobs at a time when many news accounts were debating the likelihood of a double-dip recession.

It is easy to go back and find large one or even two month jumps or plunges in employment in the household survey that correspond to nothing that can be identified in the economy at the time. The Fed is surely aware of the household survey's erratic pattern.

This means that when they sit down at their September meeting, the major news they will be considering on the labor market front will be the establishment survey. While the July data should warrant stronger steps to boost the economy (it will take 160 months of job growth at this pace to restore full employment), since they were not prepared to move before the July report, it is unlikely that a better than expected jobs number will prompt action.

Can the Fed Target Unemployment at the Zero Lower Bound?
written by bakho, August 05, 2012 6:13

What is a mechanism that the Fed could use to target unemployment at the ZLB without help from fiscal policy (which currently in the US is contracting)? The Fed is constrained by law from engaging in fiscal policy, so they do have limits. Interest rates simply do not stimulate investment in production because there is already excess capacity in most sectors. Attempts to target inflation are ineffective, because the inflation that needs to rise is wage inflation. Wages will not inflate with unemployment at 8 percent and everyone knows it. Congress could hire labor and inflate wages. The Fed lacks that power.

Is the Fed targeting unemployment or deflation? There is plenty the Fed can do to target deflation and I might add, they have done a good job at keeping inflation close to their 2 percent target.

Bernanke keeps telling Congress that they need to deal with unemployment (in so many words). If the Fed is only concerned about deflation (and not unemployment) then the jobs report is not near the top of their list.

The Fed and the Job Numbers: The Fed Looks at the Establishment Survey

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