24/7 Wall St.

Atlanta Federal Reserve President Dennis Lockhart suggested in a speech today in Chattanooga, Tennessee, that the Fed needs to look beyond the headline unemployment rate and additions to non-farm payrolls if the U.S. job market is going to recover. He noted that the U.S. is “in a bubble of uncertainty that is restraining the economy,” specifically mentioning next week’s election, the fiscal cliff, and the European financial crisis. In Lockhart’s opinion, modest economic growth “with gradual employment gains” remains the “most plausible” forecast for the U.S. economy.

After reviewing the current state of employment, current monetary policy, and the complexity of the employment market, Lockhart said he would look for the evidence beyond the headline unemployment number and the payroll jobs number. The first signal he suggests watching out for is “lower unemployment rates that are driven by increased flows of job seekers into employment.” Second, look for “growing public confidence in the labor market” increasing participation in the labor force. Third, he would “look for employment gains that are associated with reductions in unemployment,” by which he means more full-time jobs are created and filled. Finally, he would look for signs that these indicators were gaining momentum and that they are sustainable.

Lockhart supports the FOMC decision to spend $40 billion a month on purchases of mortgage-backed securities until there is “substantial improvement” in the U.S. labor market. The asset purchases should produce the signals that Lockhart is looking for. At least that’s the theory.

A copy of Lockhart’s speech is available here.

Paul Ausick