• 139 days Could Crypto Overtake Traditional Investment?
  • 144 days Americans Still Quitting Jobs At Record Pace
  • 146 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 149 days Is The Dollar Too Strong?
  • 149 days Big Tech Disappoints Investors on Earnings Calls
  • 150 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 152 days China Is Quietly Trying To Distance Itself From Russia
  • 152 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 156 days Crypto Investors Won Big In 2021
  • 156 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 157 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 159 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 160 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 163 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 164 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 164 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 166 days Are NFTs About To Take Over Gaming?
  • 167 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 170 days What’s Causing Inflation In The United States?
  • 171 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

The Sky is Not Falling...Yet

The Employment Report on Friday was bad - but it wasn't the unmitigated disaster that the consensus seems to have spun it into. It is true that there were no bright spots. It is true that the net number of new jobs added was worse than consensus and indeed worse than some of the more pessimistic expectations. But 142k new jobs is not a recessionary collapse (yet). Let us remember that one or two months every year fall below that figure (see chart, source Bloomberg).

US Employees on Nonfarm Payrolls Total
Larger Image

Folks, it's just not a robust recovery and never has been. It has been slow and steady, and now it is probably petering out, but...let's not jump off the buildings just yet. In fact, one of my favorite indicators during this period while the Unemployment Rate has been falling but the general perception of the employment picture has been poor has been the "Not in labor force, want a job now" series, which shows people who are discouraged enough to not be looking for work, but would take a job if it was offered. As the chart below shows, that number is far above the lows from the last couple of expansions, and so has been a good check on the improvement in the Unemployment Rate. Now, however, we must also recognize that it is near the recent lows.

So not all of the "job market internals" are flashing red. True, none of them are exactly flashing green, either! Nor have they really ever been, in this cycle.

At the same time, it is incredible to me that the ex-Chairman of the Fed is taking a victory lap, claiming in the Wall Street Journal today that his policies led to a non-inflationary decline in the unemployment rate. Surely a professional economist ought to know the difference between correlation and causality. It is absolute madness to claim that the Fed's policies did nothing for the price level but had a huge effect on the real economy. That is almost exactly opposite of what generations of monetary policy experience teaches us: that monetary policy has almost no effect on real variables but only affects the price level. A more thorough retort will be given in "What's Wrong with Money?", which you can pre-order now! (If you prefer, send a note to WWWM@enduringinvestments.com and I will email you when it is published).

The unemployment rate declined for two reasons: the first is that just as no tree grows to the sky, no hole is bottomless. Eventually, even without any intervention at all, the business cycle takes over and recessions end. The second reason in this case is that the federal government ran (and continues to run) massive fiscal deficits, which demonstrably affect near-term growth. Yes, those deficits merely rearrange growth, stealing growth from the future to improve growth today, but if current growth is given by Y=C+I+G+(X-M) there is no way that the Fed can claim what is the biggest contribution over the last few years, percentage-wise. Madness, I say.

Is the economy headed for recession? In all likelihood, yes. But this employment number was not the first nor even the best sign of that possibility.

 


You can follow me @inflation_guy!

Enduring Investments is a registered investment adviser that specializes in solving inflation-related problems. Fill out the contact form at http://www.EnduringInvestments.com/contact and we will send you our latest Quarterly Inflation Outlook. And if you make sure to put your physical mailing address in the "comment" section of the contact form, we will also send you a copy of Michael Ashton's book "Maestro, My Ass!"

 

Back to homepage

Leave a comment

Leave a comment