Wyoming's Grand Teton mountains have been shrouded by cloud and mist for much of the weekend. It was a fitting backdrop for the central bankers and economists who gathered beneath them to seek clarity on what labour market indicators are telling them about the state of their economies.
"I went for a long run this morning to try to make sense of everything," Tim Adams, the head of the Washington-based Institute of International Finance, said Saturday before joining the third and final day of the Federal Reserve Bank of Kansas City's annual symposium in Jackson Hole, Wyoming. The endorphins and crisp mountain air didn't really help: Central bankers face an extremely difficult task in trying to sort out what more they can do after years of extraordinary effort, Mr. Adams said.
The theme of the conference was labour-market dynamics. It's a vexing subject because the standard measures of employment, such as the jobless rate, suggest the U.S. economy is back on track, while more precise indicators, such as the number of part-time employees that would prefer full-time work, imply there remains a substantial degree of economic slack. Solving the puzzle matters because the Federal Reserve's policy committee will base its decision on when to raise interest rates on its determination of whether ultra-low interest rates will encourage more jobs without sparking rapid inflation.
Unfortunately, the deeper central bankers and economists dig into the data, the more uncertain the situation becomes. There is a broadly-held view that the adoption of computers, robots and other productivity-enhancing technology has altered the economy in such a way that demand for workers has diminished. Yet David Autor, an economics professor at the Massachusetts Institute of Technology, presented a paper that argues the impact of "machines" on employment is exaggerated. The received wisdom is the high levels of people who have been out of work for a long period of time is indicative of an economy that still is ailing. Yet another paper argued that the current rate of longer-term unemployment isn't particularly unusual for a post-recession period.
"You could go a couple of more layers deep and still be lost," Bank of Canada Governor Stephen Poloz said Friday in an interview at Jackson Hole. "It helps you understand but it it doesn't help you decide," he said of the discussion at he conference. "We're operating in this zone of uncertainty. All we can try to do is understand better the risks we are taking in one direction or the other with this policy strategy versus that one."
Fed Chair Janet Yellen crystallized the uncertainty over the labour market in a speech on Friday. She acknowledged that the rapid drop in the U.S. unemployment rate this year suggests the economy is stronger than policy makers expected it would be when they were making forecasts earlier this year. That could prompt the Fed to raise interest rates sooner than planned. Yet that's far from sure. Ms. Yellen raised a number of other indicators that suggest there remains good reason to wait. Longer-term unemployment still is elevated and wages aren't growing, for example. Those indicators signal weakness, not strength.
"An unemployment number is not like the barometric pressure or the melting point of ice, it means different things at different times," Prof. Autor said in an interview. "Paying close attention to not only the unemployment rate, but also wage growth, also the behaviour of the long-term unemployed and whether they come back into the labour force, I think is appropriate and the Fed should wait as long as it reasonably can to tighten up on monetary policy because we still have a lot of labour-market slack, very weak wage growth and there's a lot of room for further acceleration of the labour market."
Others are less sure that's the correct path. Central bankers fret about staying ahead of inflation. James Bullard, the president of the St. Louis Fed, said he's satisfied that the labour market has healed itself. American employers added more than 200,000 positions for six consecutive months through July, the first time that's happened since the 1990's. The Fed can wait a bit longer to be sure, but policy makers should probably be ready to lift their benchmark rate from zero by the end of the first quarter of 2015, he said. That's about three months sooner than what most economists on Wall Street predict.
"I do worry about starting too late and moving too slowly," Mr. Bullard said in an interview. "We have some potential to get behind the curve if we don't get going."
For his part, Mr. Poloz isn't anticipating the decision on when to adjust interest rates to be any easier in Canada than it will be for the Fed. "None of it is going result in a decimal calculation or an inference that, 'Yep, now we know it is now.' It just won't," Mr. Poloz said. "It will be a very judgmental thing."