Board of Governors of the Federal Reserve System

Figure 1. Inflation Has Been Running Persistently below 2 Percent

Figure 2. Labor Market Conditions Have Strengthened Markedly

Figure 3. Why Has PCE Inflation Been Running below 2 Percent?

Figure 4. Some of the Recent Inflation Slowdown Reflects Idiosyncratic Factors

Figure 5. The Inflation Outlook Is Inherently Uncertain

Figure 6. Some Labor Indicators Are Not Back to Pre-recession Levels

Figure 7. Other Indicators Are at or above Pre-recession Levels

Series: Private quits rate, private jobs opening rate, job availability, and jobs hard to fill
Horizon: January 2000 to August 2017
Description: The data are monthly and are plotted as four curves. All four series are reported as indexes, with an average value in 2007 equal to 100. Data for the private quits rate and the private jobs opening rate first become available in January 2001, while data for job availability and jobs hard to fill are shown starting in January 2000.

The quits rate and the jobs opening rate both started out at a relatively high level of around 115 in early 2001 but then fell modestly during the brief recession that ran from March through November of that year. Both series continued to decline over the following year and half, with the quits rate bottoming out at about 90 in mid-2003 and the jobs opening rate bottoming out at about 80. Thereafter, both series gradually recovered and stood at 100 on the eve of the severe recession that began in late 2007. During this recession (which lasted until mid-2009), the quits rate and the jobs opening rate both plummeted, with the former declining to around 65 and the latter to around 55. From then on, both series steadily rose. By August 2017, the quits rate was slightly above 100, its level on the eve of the Great Recession, while the jobs opening rate stood at 125, well above its pre-recession level.

Movements in the index for job availability over time have been quite similar to those of the quits rate and the jobs opening rate. Job availability was stable at a little over 130 from January 2000 through early 2001 but then fell markedly during the 2001 recession and the next two years, with the index bottoming out at about 75 in late 2003. The series then rose steadily through 2007 to 100 but then plunged during the Great Recession to a low of 50. From late 2009 through 2011, job availability remained roughly stable at this low level but thereafter began to climb steadily. By August 2017, the index was close to 110, modestly above its pre-recession level.

Finally, the jobs-hard-to-fill index displays a similar cyclical pattern to the other three indicators of labor market conditions. The index stood at about 130 in January 2000 but then moved up to 140 over the course of the year. The index then fell markedly during the 2001 recession and continued to move down for a time thereafter, falling below 70 for a time in mid-2003. Over the next four years, the jobs-hard-to-fill index gradually recovered to 100 but then plunged from late 2007 through late 2009 to a low of 35. As with the other indicators, the index then began to gradually recover and, by August 2017, stood at about 135, well above its pre-recession level.

Figure 8. Measures of Wage Growth Remain Subdued on Balance

Figure 9. Have Inflation Expectations Remained Stable?

Series: Expected 10-year PCE inflation (professional forecasters); expected 10-year inflation (households); 5-year, 5-year-forward inflation compensation
Horizon: 2000:Q1 to 2017:Q3
Description: The data are quarterly and are plotted as three curves. Professional forecasters' expectations for 10-year PCE inflation were essentially flat at 2.0 percent from early 2000 through early 2007, fluctuated in a narrow range of 2.0 to 2.2 percent from mid-2007 through late 2012, and have since been essentially flat at 2.0 percent. Households' expectations for inflation over the next 10 years have fluctuated from quarter to quarter but--with the exception of a temporary spike to 3.3 percent in mid-2008--stayed within a narrow range of 2.7 percent to 3.0 percent from 2000 through 2014. Since then, however, household inflation expectations have edged down somewhat and have been running in the range of 2.4 to 2.6 percent since early 2016.

By comparison, inflation compensation has varied markedly since 2000. This series stood at 2.4 percent in early 2000, moved down to almost 2.0 percent during the second half of the year, and then moved back up to 2.4 percent during 2001. From 2002 through 2013, inflation compensation fluctuated noticeably from year to year within a fairly wide range of 2.4 percent to 3.1 percent, showing little trend over time. Since 2013, however, inflation compensation has moved down noticeably, reaching a low of 1.4 percent in 2016:Q3. It has since recovered somewhat and stood at 1.8 percent in 2017:Q3.