The Janet Yellen Fed - Why Quit Rates Are Important in 2014

The Yellen Fed – Start Looking At Quit Rates

Rumors are floating around this week that Janet Yellen will be nominated to take over for Ben Bernanke as the next Fed Chair.

Equity markets seem to like this idea as investors expect Yellen will continue the Fed’s loose monetary policy.

To get an idea of what Ms. Yellen thinks about the current state of the economy, we should look to “quit rates”.

Yellen has been a fan of the quit rate for some time and has referenced it in past speeches as an indicator she looks at.

From the 2013 National Association for Business Economics Policy Conference:

 

I am likely to supplement the data on employment and unemployment with measures of gross job flows, such as job loss and hiring, which describe the underlying dynamics of the labor market. For instance, layoffs and discharges as a share of total employment have already returned to their pre-recession level, while the hiring rate remains depressed. Therefore, going forward, I would look for an increase in the rate of hiring. Similarly, a pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good–in other words, that labor demand has strengthened.

 

 

Current data on the quit rate shows the economy not growing as fast as the “official” unemployment number suggests, meaning Yellen may be able to justify keeping rates low for longer than expected.

(click to enlarge)

quit rate table

quit rates chart

Luckily, the Bureau of Labor Statistics (BLS) provides this data freely: Job Openings and Labor Turnover Survey

Chances are “quit rates” will be the new favorite phrase for 2014…

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