The Federal Reserve Board\u2019s Labor Market Conditions Index (LMCI) increased in October to +1.6 (anything above zero indicates that the labor market is absorbing slack).\u00a0 Every month but one going back to March was revised higher, adding up to over 3 more points of improvement.\u00a0 The Board only reports the index in change terms, but it is easy enough to convert the gauge into a level measure, which is what we really care about (i.e. how tight is the labor market today relative to past cycles).\u00a0 With the October gain and the upward revisions, the level index, as I have calculated it, has moved up to -3.4.\u00a0 That number by itself has no meaning, but it is helpful to compare the current reading with past cycles.\u00a0 Here\u2019s the chart:<\/p>\n
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<\/p>\n
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There are two things that you can see:<\/p>\n
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1)\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span>The current level of the index is quite high by historical standards.\u00a0 In fact, the October reading is roughly at the 75th<\/sup> percentile mark over the history of the index (going back to 1976).<\/p>\n 2)\u00a0\u00a0\u00a0\u00a0\u00a0 The doves continue to argue that there is an immense amount of slack above and beyond what the classic U-3 unemployment rate would suggest, but the Fed\u2019s own LMCI suggests otherwise.\u00a0 The LMCI includes the labor force participation rate as well as the part-time for economic reasons tally, so all of the purported \u201cextra\u201d slack is reflected in this gauge, and yet the level form of the index has tracked the narrow U-3 unemployment rate quite well since the crisis.<\/p>\n \n The LMCI supports my view that the labor market is rapidly moving toward a pretty mature stage of the expansion.\u00a0 In the past three cycles, the LMCI did not reach the October 2015 level until October 1987, June 1998, and December 2005.\u00a0 Does anyone want to guess how many times the Fed had already tightened in each of those cycles and the respective levels of the funds rate at those dates?\u00a0 Hint: in no case, is the answer is to either question zero!\u00a0 I know, I know, there is that pesky little inflation issue.\u00a0 That is certainly a fair point, but the labor market piece of the dual mandate, taken alone, indicates that the Fed is already woefully behind the curve.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" Via Stephen Stanley at Amherst Pierpont Securiites: The Federal Reserve Board\u2019s Labor Market Conditions Index (LMCI) increased in October to +1.6 (anything above zero indicates that the labor market is absorbing slack).\u00a0 Every month but one going back to March was revised higher, adding up to over 3 more points of improvement.\u00a0 The Board only […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-23685","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9YXi-6a1","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/posts\/23685","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=23685"}],"version-history":[{"count":1,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/posts\/23685\/revisions"}],"predecessor-version":[{"id":23686,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=\/wp\/v2\/posts\/23685\/revisions\/23686"}],"wp:attachment":[{"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=23685"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=23685"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/acrossthecurve.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=23685"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}