Chair Janet L. Yellen: "My Message Will Be Largely Favorable, Although Recent Developments Have Been Mixed"
At The World Affairs Council of Philadelphia, Philadelphia, Pennsylvania; June 6, 2016
In particular, an important theme of my remarks today will be the inevitable uncertainty surrounding the outlook for the economy. Unfortunately, all economic projections are certain to turn out to be inaccurate in some respects, and possibly significantly so. Will the economic situation in Europe or China take a turn for the worse or exceed expectations? Will US productivity growth pick up and allow stronger growth of gross domestic product (GDP) and incomes or instead continue to stagnate? What will happen with the price of oil? The uncertainties are sizable, and progress toward our goals and, by implication, the appropriate stance of monetary policy will depend on how these uncertainties evolve. Indeed, the policy path that my colleagues and I judge most likely to achieve and maintain maximum employment and price stability has evolved and will continue to evolve in response to developments that alter our economic outlook and the associated risks to that outlook.
The Current Economic Situation
The economic expansion following the Great Recession has now been under way for seven years. The recovery has not always been smooth, but overall, the gains have been impressive. In particular, the job market has strengthened substantially, and I believe we are now close to eliminating the slack that has weighed on the labor market since the recession.
I will turn to this past Friday's labor market report in a moment, but let me begin with some background: The economy added 2.7 million jobs last year, an average of about 230,000 a month. In the first three months of this year, payrolls were growing only modestly slower, at a little less than a 200,000 monthly pace. The unemployment rate had fallen to 5 percent, down from a peak of 10 percent in 2009. In addition, the Bureau of Labor Statistics' measure of the job openings rate was at a record high in March, and the quits rate — the share of employees voluntarily leaving their jobs — has moved up and in March stood close to its pre-recession levels. The increase in the quits rate is a sign that workers are feeling more confident about the job market and are likely receiving more job offers.
So the overall labor market situation has been quite positive. In that context, this past Friday's labor market report was disappointing. Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month. And while the unemployment rate was reported to have fallen further in May, that decline occurred not because more people had jobs but because fewer people reported that they were actively seeking work. A broader measure of labor market slack that includes workers marginally attached to the workforce and those working part-time who would prefer full-time work was unchanged. An encouraging aspect of the report, however, was that average hourly earnings for all employees in the nonfarm private sector increased 2-1/2 percent over the past 12 months — a bit faster than in recent years and a welcome indication that wage growth may finally be picking up.
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