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Price indexes for policy

What price index should monetary policymakers use to track the economy? For starters, it should have three characteristics: 1) encompass a substantial part of the economy; 2) be available without delay; 3) contain little noise from short-lived price fluctuations. Looking at the four prime candidates, there is no clear front-runner. From the top down: the CPI covers only consumption and includes highly volatile food and energy prices, but it is available quickly. The CPI less food and energy looks more stable and informative, but misses part of consumption. Personal consumption expenditures (drawn from the national income and product statistics) is available only at a quarterly frequency and after a delay of several months, a drawback that pertains also to the GDP deflator. The GDP deflator, though, covers all the economy. Which one to choose, then? Use the slide rule to look at different time periods to form an opinion.

How this graph was created: Select the four series, then apply Y-Axis Position to the right for the last two, as they have a different base year.

Suggested by Christian Zimmermann

View on FRED, series used in this post: CPIAUCSL, CPILFESL, GDPDEF, PCEPI

A long-term unemployment problem

This FRED graph divides unemployed (civilian) workers according to the duration of their unemployment spell. The number of those unemployed for 27 weeks or more is still very high, while the other categories have recovered to normal levels. This level of persistently elevated unemployment is different from that during previous recessions, and there may even be some structural component to it, given how the long-term unemployed are still struggling.

How this graph was created: This graph uses a new feature of FRED: stacked areas. (You can also choose stacked lines or histograms.) Try this: Create a graph with several series, then select “normal” stacking in the graph settings. “Percent” stacking would show the shares of each category in the total number of civilians unemployed. Or try it by clicking on the “Customize” link below the graph.

Suggested by Christian Zimmermann

View on FRED, series used in this post: UEMP15T26, UEMP27OV, UEMP5TO14, UEMPLT5

What’s “up” with the labor force participation rate?

The current economic recovery in the United States has featured an almost continuous decline in the labor force participation rate. While this decline is much discussed as a sign the economy may not be recovering, there has been a downward trend since the year 2000. So, the question is whether this decline has recently accelerated or not. Or, in other words, is it mostly cyclical or mostly structural? FRED offers plenty of more-detailed series to analyze this question. St. Louis Fed President James Bullard recently wrote a Review article about the labor force participation.

How this graph was created: Simply search on FRED for the civilian labor force participation rate (CIVPART).

Suggested by Christian Zimmermann

View on FRED, series used in this post: CIVPART


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