Amid declining participation in the job market, the unemployment rate has become a less useful tool to gauge the health of the labor market. The Fed will have to turn to other measurements -- namely, the quits rate -- to guide monetary policy.
FORTUNE — Janet Yellen arrives on Capitol Hill today to submit herself to questioning from the House Financial Services Committee. The new Fed Chair will likely be grilled on what metrics she will be using to determine whether the labor market is improving.
Amid declining participation in the job market, the unemployment rate — which now sits at 6.6% — has become a less useful measurement because people are dropping out of the labor market altogether rather than behaving like traditionally unemployed people do.
For traders looking to predict Fed policy, it might be useful to look at the monthly Job Openings and Labor Turnover Summary, released Tuesday morning by the Bureau of Labor Statistics. The survey measures the number of new job openings, and the rate at which workers are starting and leaving their jobs. The BLS announced this morning that 4.4 million people started and left jobs in December, little change from November. There were modest changes in the number of new job openings in December as well.
Another statistic in the Turnover Summary that Yellen has previously said she’ll focus on is the percentage of workers who are quitting each month. Yellen said last year that, “a pick up 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.”
So how is that quit rate doing? It remained roughly steady at 1.7% of the population, but as you can see from the chart below, it’s been slowly increasing since the depths of the recession.
Though the quit rate still remains below average, look for this metric to improve along with the labor market, and look for Janet Yellen to use it as a benchmark to guide her decisions on monetary policy.