Perspectives Blog

Steady as she goes

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | April 7, 2014

The March labor market report was solid, with the overall private level of employment finally exceeding the pre-recession high. The Household Survey had the unemployment rate holding steady at 6.7%. A recurrent problem is the poor quality of job growth in terms of underemployment/part timers and wage growth. The March labor market report from the BLS can be characterized as solid and showing little weather effects and probably some catch-up fr…

U.S. rates – An intriguing six point three

Zach Pandl, Portfolio Manager and Strategist | June 9, 2014

…ce, a recent paper by economist Andrew Levin (previously Janet Yellen’s chief of staff) puts the degree of broad labor market slack at around 5.5 million full-time equivalent workers (see figures 1 and 2; these are our estimates using Levin’s methodology). Although FOMC members frequently talk about cyclical weakness in labor force participation and slack in hours worked, they rarely provide quantitative estimates like this. The Levin slack estim…

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

…e: “In some ways, the job market is tougher now than in any recession.” And, in her discussion of the decline in labor force participation: “some ‘retirements’ are not voluntary, and some of these workers may rejoin the labor force in a stronger economy. Participation rates have been falling broadly for workers of different ages, including many in the prime of their working lives.” These comments suggest Yellen’s own read on labor market slack is…

Gaps, not growth

Zach Pandl, Portfolio Manager and Strategist | February 25, 2014

…ht monthly economic indicators: (1) the unemployment rate, (2) the industrial capacity utilization rate, (3) the labor differential from the consumer confidence survey, (4) the business conditions index from the consumer confidence survey, (5) the quality of labor index from the NFIB small business survey, (6) the poor sales index from the NFIB small business survey, (7) the open positions index from the NFIB small business survey, and (8) a meas…

Income inequality, disinflation and profit growth – the role of globalization

March 10, 2014

Income inequality has tended to rise in both developed and EM. Companies look across the globe to determine where they can manufacture their products at the lowest risk-adjusted cost. We believe that the global unit labor cost arbitrage is likely to continue for many decades. By Marie Schofield, Chief Economist and Toby Nangle, Head of Multi Asset Allocation Last week we discussed rising income inequality in developed markets and the degree to…

Dovish feathers showing through

Zach Pandl, Portfolio Manager and Strategist | April 14, 2014

…the unemployment rate is broadly consistent with other measures of economic slack from a verity of sources. The labor force participation rate has declined very sharply since 2007, but 45% of labor force exits represent retirements and 20-25% represents new disability recipients—categories that historically have seen very low re-entry rates. The decline in the participation rate also looks much like the pattern in other post-financial crisis eco…

What to expect from Janet Yellen’s testimony

Zach Pandl, Portfolio Manager and Strategist | February 10, 2014

…t gap). Look for Yellen to stick close to this basic message, noting that the Fed sees some cyclical weakness in labor force participation, but that the decline also reflects long-term structural factors. Any other signal on this topic would be very surprising—and important from a market perspective—given the large body of research on the structural drivers of weak labor force participation. 3. Low inflation is not guaranteed. A common argument i…