Policy action is needed, with all deliberate speed.
Figure 1 provides a summary snapshot of the labor market.
Figure 1: Log nonfarm payroll employment (blue), household series adjusted to NFP concept (red), private nonfarm payroll employment (green) and ADP measure of private nonfarm payroll employment (purple), all normalized to 2009M01=0. Source: BLS and ADP via FRED, and BLS, NBER, and author’s calculations.
Clearly, all employment measures — overall NFP and private — are below their corresponding measures at the peak at 2007M12, while growth (which can be inferred from the slope of the curves, since the series are logged) remains at lackluster rates. It is interesting that the ADP series trended higher than the corresponding BLS measure of private employment in the last few months.
On the other hand, the private NFP measure is above the levels recorded in 2009M01, while the alternative (experimental) BLS measure touted by conservatives in the early 2000’s is slightly below levels recorded at 2009M01. (This experimental measure is now about 1.9 million above the establishment series). The experimental measure is discussed in this post. [edits added 2:40PM Pacific; thanks to Steve Bronars for catching my error - MDC]
Figure 2: Log nonfarm payroll employment (blue), household series adjusted to NFP concept (red), private nonfarm payroll employment (green) and ADP measure of private nonfarm payroll employment (purple), all normalized to 2009M01=0. Source: BLS and ADP via FRED, and BLS, NBER, and author’s calculations.
Hence, while the labor market continues to improve, it’s clear that much more needs to be done, particularly as we hurtle toward the fiscal cliff, and Europe sinks into de facto recession. A further easing, via QE3, is clearly on the table, and in my view, critically needed. Deutsche Bank assesses the potency of such measures thus:
Our quantitative assessment of the effects of the FOMC’s
unconventional balance sheet policies to date indicates that the
Committee still has significant scope and firepower to boost financial
conditions and stimulate the economy if it chooses to do so. Indeed, we
find that the Fed’s actions have been the primary reason for the drop in
Treasury yields from 3.0% to 1.5% in recent years. And, in line with
some other studies, we find that the effectiveness of QE measures has
not diminished appreciably with its increased use.
Hooper, Mayer, Spencer, Slok, Global Economic Perspectives, September 7, 2012 [not online]