US Fed Study Shows Unemployment Rate Still Good Indicator

The U.S. jobless rate in recent years has been a good gauge of slack in the economy, according to a paper published Monday by the Federal Reserve Bank of San Francisco that takes aim at critics who have argued otherwise.

Indeed, the unemployment rate has responded to GDP growth since the financial crisis in essentially the same way that it has in every recession since the 1970s, the paper’s authors found, rising when economic output slows, and falling when it speeds up.

“The unemployment rate remains a good summary measure of overall economic slack,” wrote Mary Daly, No. 2 in the San Francisco Fed’s research department, and John Fernald, a senior research advisor at the San Francisco Fed, in the latest issue of the bank’s Economic Letter.

Figuring out the exact extent of slack in the economy is one of the most pressing questions for monetary policymakers, Fed Chair Janet Yellen has said.

via Reuters

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