Fed Chairwoman Janet Yellen's congressional testimony proved that she is more than qualified to steer the US economy back to health. She is the economists' economist, in a word, willing to explain the most basic economic truths in her first marathon session (seven hours) before the House Financial Services Committee.
For instance, when asked why did we need QE3 purchase of securities, she responded that the Fed had taken seriously Congress's twin mandates of maximum employment with stable inflation. And since inflation was in fact still falling (far below what is normal for healthy growth) and employment weak, keeping interest rates as low as possible at this stage of the recovery was the best way to boost the continued growth of jobs.
She also said the Fed would continue to taper their monthly QE3 purchases. But stocks and bonds rallied this time, rather than fell as in the past on the fear that higher rates might stifle growth. The markets took her remarks instead as a sign that economic growth was strong enough to be able to accommodate higher interest rates.
But her testimony was most important, because she instilled confidence that she knew what she was talking about. She was the vice chairman who had created the current Fed policies with former Chairman Bernanke, after all.
Graph: Calculated Risk
The best indicator regarding job creation is the Labor Department's JOLTS report that tracks the number of "quits," those that voluntarily leave their jobs because of better prospects. Therefore, the quits rate can serve as a measure of workers' willingness or ability to leave jobs. The number of quits (not seasonally adjusted) increased over the 12 months ending in December for total nonfarm and total private and was little changed for government.
The above graph, compliments of Calculated Risk, shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
Notice how the yellow line of job openings has been rising since 2009, the end of the Great Recession. Hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover. When the blue line is above the two stacked columns, the economy is adding net jobs -- when it is below the columns, the economy is losing jobs.
Jobs openings decreased slightly in December to 3.990 million from 4.033 million in November. But the number of job openings (yellow) is up 10.5 per openings year-over-year compared to December 2012, and almost double 2009 2.2 million openings, while quits increased in December and are up about 12 percent year-over-year.
This is the employment picture Fed governors are seeing, and the reason there is still a long way to go to achieve full employment. After all, there were more than 5 million job openings in 2000 alone, and 22 million jobs created from 1992 to 2000. That was a different era, but one that the Federal Reserve is mandated to recreate.
Harlan Green © 2014