The Slack

Bloomberg Article

Federal Reserve Chair Janet Yellen is among policy makers who remain concerned that pockets of slack in the job market including stagnant wages and elevated numbers of long-term unemployed workers, continue to hold back the world’s largest economy.

Two-thirds of labor market indicators that Yellen has said she monitors to judge the health of the labor market haven’t yet returned to pre-recession strength. A still-elevated level of underemployment, decades-low workforce participation and a still-low number of workers secure enough to quit their jobs are among the gauges that remain weaker than 2004-07 averages.

Millian Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, said before the report. “The underlying story on claims remains the same — it’s one that’s fairly constructive and one that’s pointing to a labor market that’s finally, I would think, having lift-off.

CNBC Article

Claims are settling down after some volatility in July related to the annual automobile plant shutdowns for retooling. A Labor Department analyst said there were no special factors influencing the state level data.

A significant decline in layoffs, which has pushed claims down to their pre-recession levels, has been the major driver of an improving job market.

But hiring is also gaining traction. A report on Tuesday showed hiring rose in June to its highest level since February 2008. The number of job openings that month was the highest since February 2001.

My Opinion:  Imagine you are pulling on a rope that has our economy on the other end.  If the rope is not tight then the economy will not move. This is a good way to think of the term “slack”. And to get our economy moving similarly to pre-recession levels, we must first tighten the slack in the labor market.  As mentioned by Yellen in the quote above, the pockets of slack still present are stagnant wages, long-term unemployment and underemployment.  So what do we do?

Well, I would say we just stay the course.  Areas of our economy need to get better but I’m not so sure anything other than “time” is the best remedy at this point.  Yellen has said that the Fed will remain highly accommodative for a considerable period of time.  And although the bond buying program remains scheduled to end by 2015, exceptionally low interest rates should be enough to support any economic weakness still lingering.

Personally, I super excited to see how big 2015 will be.

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