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Yellen's Cold Open

12:00 AM, Feb 8, 2014 • By IRWIN M. STELZER
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Yellen will be pressed by liberals to defend continued tapering in an economy that added only 113,000 jobs in January, after a paltry 75,000 in December. Coming at her from her right will be conservatives who agree with Richard Fisher, head of the Dallas Fed, a new addition to the Board’s monetary policy committee, and a long-time opponent of QE3, that monetary policy has done all it can to get the economy back on track. Look for Yellen to say that she will continue to monitor the economy and react to data as it comes in, and not accelerate tapering merely because the unemployment rate drops below 6.5 percent, which it will soon do.

More important than these monthly data are long-term structural problems in the labor market. The labor force participation rate did tick up to 63 percent in January from 62.8 percent in December, and the number of workers unemployed for more than 27 weeks did drop by 232,000 in January. But that tiny bit of good news must be weighed against the facts that it would take some eight million workers to leave the couch and return to the job hunt for the participation rate to return to pre-recession levels, and 3.6 million workers remain unemployed long enough to make it difficult for them to retain the skills needed to be re-hired. They are, in the jargon of the trade, “scarred.” Had the number of Americans looking for work not declined, which means they are not counted among the unemployed, the unemployment rate would be over 11 percent. Hence the fierce debate between Democrats who want to raise the minimum wage to give the labor-force drop-outs and the unemployed a greater incentive to seek work, and Republicans who want to create that incentive by not renewing extended unemployment benefits. They might both be right.

The largest decline in the labor force participation rate is among 16-24 year olds – and they are not in school. Participation by 25-54 year old workers is also down. Only workers older than 54 are increasingly at work, as retirement becomes less of a financial option for some, and less attractive to those who are better-off, healthy, and eager to remain active no matter the peril to their golf scores. As the Manhattan Institute’s Diana Furchtgott-Roth points out in RealClearMarkets.com, “One reason for few jobs for younger workers is the increasing labor force participation rate of older workers delaying retirement.” But she adds, “Another reason is the slow GDP growth rate.”

When the Fed’s monetary policy committee reconvenes on March 18 the snows should have melted, consumers will have emerged from hibernation, and we will have had another jobs report among other data to allow a better guess at whether John Felice, Ford’s marketing vice president, is right. He says, “We expect things to return back to trend. All the fundamentals still look really solid.”

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