There’s an ironic bit of foresight in Dudley’s speech. February’s high rate of payroll growth was championed by optimists as a sign that labor market conditions were improving. However, Dudley expressed doubt that, not only is the labor market far from healthy, but since Fed policy is “based on the outlook for the labor market, not the level of employment or unemployment today. In this context I note that the recent improvement in payroll employment growth, which gets much of the attention, is out-sized relative to the growth rate of economic activity that supports it.”
Strong payroll growth is nice, but it’s not the only thing that people should be looking at. As if to demonstrate his point, March’s payroll growth fell way short of expectations at just 88,000. This supports Dudley’s claims that preceding payroll growth was not reflective of real labor market conditions, and shouldn’t be used to diagnose the economy.