I don’t know what it would take to become a labor economist, but I find myself focusing more frequently on labor through employment, wages, and spending. The place I have been collecting data is contained on the page with the 2016 Indicators. I recently did a data update with the employment data from the first week of November.
Employment Participation Rate is on a separate page. There was some discussion in the press about the declining participation rate. I don’t think there was enough. The rate for October 2015 was 62.5%. This is below the rate of 63.0% in October 2014. For both men and women, the participation rate is lower than last year and is below the twelve-month average. The trend for both is lower. This trend should continue through the beginning of the year and I’m making that judgment based on expectations of a December Federal Funds rate increase and the trend on the indicators page.
Capacity Utilization has continued its trend lower. It had a near-term peak of 78.7 in January and has slid lower throughout the year to the September release of 77.5. With that much spare capacity and the participation rate decreasing, there is quite a bit of slack of resources in the economy. You can see that in the inflation numbers — both past and future. The past twelve months has seen inflation at 0%. The result of these factors is a five-year inflation expectation of 1.2%. To summarize this into a phrase — there is no current inflation and no expected inflation for a number of years.
Real Wages is calculated quarterly and turned below zero in the third quarter. This indicates to me there is no wage pressure in the economy even though the unemployment rate fell to 5%. The participation rate is the driving factor of wage pressure, not the unemployment rate, and the data supports this position. One consequence of decreasing wages is the decreasing real retail figure. It is now below a 2% year-over-year rate. I’ve heard mixed expectations for retail trade in the holiday season. I’m beginning to think it will not be good and might be lower than last year. That will put pressure on the Federal Reserve to not raise rates early next year.