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Paul Davidson, USA TODAY          August 22, 2014

Federal Reserve Chair Janet Yellen said Friday the recent rapid decline in the unemployment rate likely overstates the health of the labor market, which may have been altered persistently by the Great Recession.

Speaking at the Fed’s annual symposium in Jackson Hole, Wyo., Yellen said other barometers of the job market, such as the low number of Americans participating in the labor force, “suggest that the decline in the unemployment rate over this period somewhat overstates the improvement in overall labor market conditions.”

Despite the fall in the jobless rate to 6.2% from 10% in fall 2009 and average monthly job growth of 230,000 this year, “it speaks to the depths of the damage that, five years after the end of the recession, the labor market has yet to fully recover.”

Debate is heating up among Fed policymakers about when to begin raising the Fed’s benchmark short-term interest rate, near zero since the financial crisis. While most policymakers have indicated the first rate hike is likely to come in mid-2015, some have argued the improving job market and rising inflation should lead to an earlier increase.

Yellen is considered one of the Fed’s most pro-growth policymakers — meaning she is more concerned with pushing down unemployment than heading off inflation. But rather than provide evidence solely to support that view, Yellen on Friday provided fodder for both pro-growth and anti-inflation factions of policymakers. She concluded the Fed’s decision about when to raise interest rates is particularly challenging and will depend on the speed of the recovery.

“So, what is a monetary policymaker to do?” she asked.

On the one hand, she said, the number of people participating in the labor force is near historic lows. And while much of the decline is due to Baby Boomers retiring, Yellen suggested that even those retiring or going on disability could return to the workforce as the job market improves. That could push up the unemployment rate again — an argument for keeping interest rates low for a longer period.

Similarly, she said, an unusually large number of Americans are working part-time even though they prefer full-time work, and hiring and the number of workers quitting jobs remains relatively low despite strong growth in the number of job openings. Economists have argued over whether these trends reflect long-term structural changes in the job market or short-term episodes that can be influenced by Fed policy.

Yellen indicated she takes the latter view, suggesting the Fed still could use low interest rates to bolster employment.

“The balance of evidence leads me to conclude that weak aggregate demand has contributed significantly to the depressed levels of quits and hires during the recession in the recovery,” she said.

Yellen also provided fodder for the anti-inflation camp. Although wage increases of about 2% a year have been weak — suggesting minimal upward pressures on inflation — Yellen said that may be because employers were hesitant to reduce wages during and after the recession and are minimizing raises now to offset that. Eventually, however, “wages could begin to rise at a noticeably more rapid pace once pent-up wage deflation has been absorbed.”

She also said many of the long-term unemployed may not be seriously considered as job candidates by employers. That implies a more limited pool of candidates than the unemployment rate suggests and possibly a more rapid rise in wages that pushes up inflation.

That could lead to an earlier increase in interest rates.

Yellen further cautioned, however, that stronger wage increases could draw more Americans back into the labor force and push down long-term unemployment. in that case, a premature increase in rates might “prevent labor markets from recovering fully.”

United States Department of Labor

August 19, 2014
The Consumer Price Index for All Urban Consumers (CPI-U) increased
0.1 percent in July on a seasonally adjusted basis, the U.S. Bureau
of Labor Statistics reported today. Over the last 12 months, the all
items index increased 2.0 percent before seasonal adjustment.

The all items index posted its smallest seasonally adjusted increase
since February; the indexes for shelter and food rose, but were
partially offset by declines in the energy index and the index for
airline fares. The food index rose 0.4 percent in July, with the food
at home index also rising 0.4 percent after being unchanged in June.
The decrease in the energy index was its first since March and featured
declines in the indexes of all the major energy components.

The index for all items less food and energy increased 0.1 percent in
July, the same increase as in June. Along with the shelter index, the
indexes for medical care, new vehicles, personal care, and apparel all
increased in July. Along with the index for airline fares, the indexes
for recreation, for used cars and trucks, for household furnishings and
operations, and for tobacco all declined in July.

The all items index increased 2.0 percent over the last 12 months, a
slight decline from the 2.1 percent figure for the 12 months ending June.
The index for all items less food and energy rose 1.9 percent over the
last 12 months, the same figure as for the 12 months ending June. The
energy index has increased 2.6 percent, and the food index has risen 2.5
percent over the span.

Consumer Price Index Data for July 2014

Food

The food index rose 0.4 percent in July, its fifth increase at least that
large in the last 6 months. The food at home index also rose 0.4 percent
in July, with no declines among the six major grocery store food groups.
The largest increase was posted by the other food at home index, which
rose 0.7 percent, its largest increase since August 2011. The index for
nonalcoholic beverages rose 0.5 percent in July, and the cereals and
bakery products index increased 0.4 percent. The index for meats, poultry,
fish, and eggs rose 0.3 percent, as did the dairy and related products
index. The only major grocery store food group index not to rise in July
was fruits and vegetables, which was unchanged. The index for fresh fruits
rose 1.0 percent, but the fresh vegetables index fell 1.1 percent. The food
at home index has risen 2.7 percent over the last 12 months. The index for
meats, poultry, fish, and eggs has increased 7.6 percent over the span and
the index for dairy and related products has risen 4.3 percent. The index
for food away from home rose 0.3 percent in July after increasing 0.2 percent
in each of the 2 previous months. It has risen 2.4 percent over the last
12 months.

Energy

The energy index, which had risen in each of the last 3 months, fell 0.3
percent in July as all of its components posted modest declines. The
gasoline index fell after a series of increases, declining 0.3 percent.
(Before seasonal adjustment, gasoline prices decreased 1.5 percent.) The
electricity index also fell 0.3 percent in July; it has now risen three
times and fallen three times over the last 6 months. The fuel oil index
fell 0.7 percent in July; this was its smallest decline in the last 5 months.
The index for natural gas fell 0.4 percent, its third decline in a row.
Despite the July declines, all the major energy component indexes have
increased over the past 12 months. The index for natural gas has risen
6.9 percent and the electricity index has advanced 4.0 percent. The fuel
oil index has risen 2.2 percent, and the gasoline index has increased 0.8
percent.

All items less food and energy

The index for all items less food and energy increased 0.1 percent in July,
the same increase as in June. The shelter index, which rose 0.2 percent in
June, advanced 0.3 percent in July. The indexes for rent and owners’
equivalent rent both increased 0.3 percent, while the lodging away from
home index rose 0.2 percent. The medical care index rose 0.2 percent in
July. The index for medical care commodities rose 0.3 percent, with the
index for prescription drugs increasing 0.5 percent. The index for medical
care services increased 0.1 percent, with the hospital services index rising
0.4 percent but the index for physicians’ services declining 0.2 percent.
The index for new vehicles, which fell 0.3 percent in June, rose 0.3 percent
in July. The index for personal care also rose 0.3 percent, and the apparel
index advanced 0.2 percent. In contrast to these increases, the index for
airline fares fell sharply in July, declining 5.9 percent after rising 10.9
percent over the previous 5 months. The index for used cars and trucks fell
0.3 percent, its third consecutive decline. The tobacco index, which rose
1.0 percent in June, also declined 0.3 percent in July, while the indexes
for recreation and for household furnishings and operations both declined
0.1 percent.

The index for all items less food and energy has risen 1.9 percent over the
last 12 months. The shelter index has risen 2.9 percent over this span, and
the medical care index has increased 2.6 percent. Indexes that rose more
slowly over the last 12 months include the apparel index (0.3 percent) and
the indexes for new vehicles and for used cars and trucks (both 0.2 percent).
The indexes for airline fares and for household furnishings and operations
both declined over the past year.

Not seasonally adjusted CPI measures

The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.0 percent
over the last 12 months to an index level of 238.250 (1982-84=100). For the month,
the index was unchanged prior to seasonal adjustment.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)
increased 1.9 percent over the last 12 months to an index level of 234.525
(1982-84=100). For the month, the index fell 0.1 percent prior to seasonal adjustment.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 1.9
percent over the last 12 months. For the month, the index fell 0.1 percent on a not
seasonally adjusted basis. Please note that the indexes for the post-2012 period are
subject to revision.
The Consumer Price Index for August 2014 is scheduled to be released on Wednesday,
September 17, 2014, at 8:30 a.m. (EDT).