Another quarter has come, and it arrived with good news on jobs. The stock market didn’t tank right away, but most investors agree that the daze of puffed-up valuations for everyone are over. The consensus seems to be that rather than a general fall, investors will have to be more selective and careful. This is consistent with an economy that is changing and gradually turning over, ahead of the next Big Thing that will propel a real bull market in coming years.
But where do we stand with respect to Yellen’s Dashboard – those key economic indicators that Fed Chair Yellen said she’d be watching for movement where there has been so little over the past few years? We don’t have all the data to fill in where 3Q14 stands, but we have most of it. And it all looks good. Which is to say bad, if you’re so minded, because it really does look like the Fed is going to raise rates.
Let’s run down the pieces of Yellen’s Dashboard to see where there is improvement.
U6 Unemployment – Where it once peaked at 17.1%, this broad measure of unemployment has now fallen to 11.8%. That means that 1 person in 20 has seen their employment status improve since the worst of it all in January 2010. It’s looking much better.
Long Term Unemployment – Where it peaked to 40.7 weeks average duration in 2011 it’s down to 31.5 weeks today. That’s a big improvement, but still 7 months average duration. It was only 3 months in 2000, the last time things looked good.
Workforce Participation – this is a number that was constantly falling overall as Baby Boomers retire, and was also continuing to drop as people found it hard to find jobs. Some were ducking into school for the duration while others were just suffering. It’s hard to tell just what it means. We’ve been using the workforce participation for 25-54 year olds, a figure that should tease out some of those effects. It is back up to 81.0%, a small but important bump. This needs to keep rising to mean much.
Quit Rate – We don’t have the latest data on this one, but it was back up to 2.0% in the middle of the summer. This is percentage of workers who voluntarily leave their jobs, probably because they have a better one. It needs to go up to 2.4% before we’re at a level that historically shows workers are seeing their lot rise.
Wage Growth – another figure that is slow to come in. All we have is last quarter’s 2.0% rise in wages year over year, which barely keeps up with inflation.
Where are we now on the dashboard? If you look at the method used last time to evaluate progress off of the low, with each of the five items ranked on a 0-20 scale, we’ve made great progress in just this quarter. If we keep this up, we can expect interest rates to start rising as early as the first quarter of 2015. The total for 2000-era goodness would be 100 in this scale:
|Long Term Unemployment||3.5||3.6||5.1||6.5|
|Total (out of 100)||19.7||26.9||29.8||36.8|
What will that mean for the stock market? The era of easy money is definitely over. Companies have to start performing, and those that puffed up their stock with a lot of new debt will find that they are in a little bit of trouble as the cost of that debt rises. This is definitely a turning point in the restructuring process for all corporations.
Meanwhile, the ADP employment report is showing that we are gaining jobs at a rate of 210k per month – with a solid 37% of them coming from large companies in September. There is reason to believe that in 2 years, or at the end of 2016, we’ll be talking about full employment if these trends continue. That’s when things really start to change.
For now, we have to be happy with some solid if slow progress.