'Robust, broad-based and likely to continue'
(Reuters) — The United States jobless rate is set to drop further and possibly faster over the coming six months, according to research published Tuesday by the Federal Reserve Bank of San Francisco.
That encouraging outlook could bolster the case for the U.S. central bank to ease up on its monetary gas pedal, currently pushed nearly to the floor to drive down borrowing costs and stimulate investment and hiring.
The Fed is buying US$85 billion in treasuries and housing-backed securities each month It has promised to keep buying assets until the labour market outlook improves "substantially."
Many investors, cheered by a decline in the unemployment rate over the past year, last month thought the Fed was ready to trim the pace of its purchases. Fed chairman Ben Bernanke surprised them by holding the program steady, saying he wants to see more confirmation that the job market is improving before dialing back the program.
Researchers at the San Francisco Fed scoured available gauges of job market health, and found six that are particularly predictive of future labour market conditions. All six, in fact, give a better signal of where the unemployment rate will be half a year down the line than the current unemployment rate itself, they said. And all six, they found, had improved since the Fed began buying bonds last September.
"Across the board, these indicators show the pace of the labour market recovery has increased compared with a year ago," wrote Mary Daly, the San Francisco Fed's deputy research director, and colleagues Bart Hobijn and Benjamin Bradshaw. "We take this as evidence that the recovery in the labour market is robust, broad-based, and likely to continue, if not accelerate, over the coming months."
The indicators the researchers found particularly useful were the insured unemployment rate, initial claims for unemployment insurance, capacity utilization, the Institute for Supply Management (ISM) manufacturing index, private payroll employment growth, and the so-called jobs gap. The jobs gap is a measure taken from the Conference Board's Consumer Confidence Survey that tracks the difference between the percentage of households that sees jobs as scarce and the percentage that sees jobs as plentiful.
The researchers found that all but one of the six indicators are currently signalling improvement in the job market. Only one, payroll employment growth, signalled a slackening of momentum.
Still, the researchers stopped short of saying their data suggests the Fed should scale back bond purchases.
"Whether this increase in momentum amounts to a 'substantial improvement' in the outlook for the labour market is a question for policymakers to decide," they wrote.
Fed policymakers next meet Oct. 29-30.