The Fed Shoots The Messenger

The Labor Market Conditions Index Buried in Shallow Grave

With all the fanfare of a charlatan skipping town after dark, the U.S. Federal Reserve last week unceremoniously ended its once-ballyhooed Labor Market Conditions Index. Since 2012, LMCI kept showing labor market conditions slipping.

The LMCI was introduced in May 2014, and is based on 19 labor market indicators.

When unveiling the LMCI at the Fed’s 2014 annual confab in Jackson Hole, Wyoming, Chair Janet Yellen hailed the new, better indicator as a “broader gauge” of labor market, compared to simple unemployment numbers. The LMCI includes underemployment, part-time work and long-term unemployment figures.

In a jaw-dropping yet ultimately cryptic explanation, the Fed last week said graveyards for the LMCI, especially as the tracking of average hourly earnings as an indicator did not provide a meaningful link between labor market conditions and wage growth.”

You could decipher that sentence for a long time, without conclusion.

A Cynic Might Say

It is odd that the once-touted LMCI was dropped just a few days before the July reading was due for publication. Looking at the LCMI chart trends through June, one might surmise the July LMCI  would indicate a labor market actually easing up.

Thus the buried July LMCI reading would be in direct conflict with recent Fed statements, such as the May Beige Book outlook that, “Labor markets continued to tighten, with most Districts citing shortages across a broadening range of occupations and regions.”

One might hope that an enterprising Washington, D.C. reporter will file a Freedom of Information Act request at the Fed, seeking the July LMCI.

Add on: the Q2 Bureau of Labor Statistics report released yesterday on productivity and wages, is consistent with….deflation! From the report, “Unit labor costs decreased 0.2% over the last four quarters.”

Conclusion

What to make out of the insistence at the Fed and in establishment media that a scourge of “labor shortages” threatens to raise wages, undercut the recovery and possibly produce runaway inflation?

Unit labor costs are falling year-over-year!  The Fed’s own July LMCI is suspiciously torpedoed just before publication.

The Fed is proving a menace to prosperity and the free-market system. Could one blame the employee class for concluding the nation’s central bank, iconic of banking, prefers wage suppression to wage growth?

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