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Economics for your Classroom from
Ed Dolan’s Econ Blog
Inflation Jitters Emerge as
Unemployment Nears
Natural Rate
Mar 8, ...
Economy Adds 295,000 Jobs in February
 The economy added a healthy
295,000 payroll jobs in February
2015, according to th...
Unemployment Rate Hits 5.5 Percent
 The US unemployment rate fell to 5.5
percent in February, a new low for the
recovery....
Unemployment Approaches Natural Rate
 The latest decrease brought
joblessness close to the so-called
natural rate of unem...
Stock Markets Fall on Inflation Fears
 Stock markets fell on inflation fears
as unemployment neared the NAIRU
 Evidently...
More Labor Market Slack than Meets the Eye
 One reason that inflation is not
increasing is that there is more slack in
th...
Long-term Unemployment
 Another sign of slack is a high level of
long-term unemployment
 Those out of work 27 weeks or m...
Involuntary Part-Time Workers
 Still another sign of slack is the large
number of people working part time
“for economic ...
The Bottom Line: Labor Market Strong but Little Risk of Inflation
 The labor market is improving steadily
and is now very...
Click here to learn more about Ed Dolan’s Econ texts
For more slideshows and commentary, follow Ed Dolan’s Econ Blog
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Inflation Jitters Emerge as Unemployment Nears Natural Rate

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The US unemployment rate fell to 5.5 percent in February 2014, within easy reach of the so-called natural rate, estimated to be 5.9 percent. Stock markets fell on inflation fears, but a closer look shows that those fears are exaggerated

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Inflation Jitters Emerge as Unemployment Nears Natural Rate

  1. Economics for your Classroom from Ed Dolan’s Econ Blog Inflation Jitters Emerge as Unemployment Nears Natural Rate Mar 8, 2015 Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.
  2. Economy Adds 295,000 Jobs in February  The economy added a healthy 295,000 payroll jobs in February 2015, according to the latest report from the Bureau of Labor Statistics  It was the twelfth consecutive month of job growth above 200,000, making it the best full-year period since the late 1990s March 8, 2015 Ed Dolan’s Econ Blog
  3. Unemployment Rate Hits 5.5 Percent  The US unemployment rate fell to 5.5 percent in February, a new low for the recovery.  The unemployment rate is the ratio of unemployed persons to the labor force. The labor force shrank by 178,000 for the month, following unusually strong growth in January. The number of employed persons increased by 96,000 and the number of unemployed decreased by 274,000  The household survey on which unemployment data are based uses a different methodology from the establishment survey of payroll jobs March 8, 2015 Ed Dolan’s Econ Blog
  4. Unemployment Approaches Natural Rate  The latest decrease brought joblessness close to the so-called natural rate of unemployment, the rate that would prevail based on structural factors alone, without influence from the business cycle  That rate is also known as the non- accelerating inflation rate of unemployment or NAIRU. The term reflects a belief that inflation will begin to accelerate when inflation is lower than the NAIRU.  The Congressional Budget Office currently estimates the NAIRU to be 5.39 percent March 8, 2015 Ed Dolan’s Econ Blog
  5. Stock Markets Fall on Inflation Fears  Stock markets fell on inflation fears as unemployment neared the NAIRU  Evidently, some market participants expect the Fed to begin raising rates as soon as unemployment drops below the natural rate  However, inflation, as measured by the Fed’s favored indicator, the personal consumption expenditure index (PCE index) remains far below the Fed’s 2 percent target  As of Q4, the latest reading for the PCE index, inflation was just 1 percent. Early indications suggest that it will slow further in Q1 2015 March 8, 2015 Ed Dolan’s Econ Blog
  6. More Labor Market Slack than Meets the Eye  One reason that inflation is not increasing is that there is more slack in the labor market than indicated by the standard unemployment rate  The BLS publishes an alternative measure of unemployment, U-6, that includes discouraged workers and involuntary part-time workers  U-6 fell to 11 percent in February, also a low for the recovery, but it remains a full 2 percent above its prerecession level, a bigger gap than for the standard unemployment rate March 8, 2015 Ed Dolan’s Econ Blog
  7. Long-term Unemployment  Another sign of slack is a high level of long-term unemployment  Those out of work 27 weeks or more still total more than 31 percent of the labor force, about twice the prerecession level  The decrease in the percent of long-term unemployed has stalled in the past six months March 8, 2015 Ed Dolan’s Econ Blog
  8. Involuntary Part-Time Workers  Still another sign of slack is the large number of people working part time “for economic reasons,” that is, because they can only find part-time work or because their employers have cut their hours due to slack demand  The percentage of the labor force working part time for economic reasons has been falling steadily and hit a new low for the recovery in February, but it remains much higher than it was before the Great Recession began March 8, 2015 Ed Dolan’s Econ Blog
  9. The Bottom Line: Labor Market Strong but Little Risk of Inflation  The labor market is improving steadily and is now very close to the NAIRU, or natural rate of unemployment  However, considerable slack remains in the economy, as shown by indicators like U-6, long-term unemployment, and involuntary part-time work  With little risk of inflation, fears that the Fed will soon begin tightening policy may be exaggerated March 8, 2015 Ed Dolan’s Econ Blog
  10. Click here to learn more about Ed Dolan’s Econ texts For more slideshows and commentary, follow Ed Dolan’s Econ Blog Like this slideshow? Follow @DolanEcon on Twitter

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