Still Not Enough

4 June 2021


Cogito Ergo Non Serviam

US Economy Adds 559,000 Jobs in May 2021


The US Non-Farm Payrolls, also known as the jobs report, came out a few minutes ago showing that the American economy added 559,000 jobs in May. That brought the unemployment rate down to 5.8%, and wages rose 0.05%. March and April's job figures were revised upwards for a total addition of 27,000 more jobs that previously reported. The downside to this was a 0.1% drop in the participation rate, which is barely noticeable but remains a source of concern because it should be increasing. There are a record 8.1 million job openings. The nation is still 7.5 million employed people short of where it was in February 2020 before Covid-19 forced the economic hibernation that is just ending. Things are improving, but they are hardly good enough.

The next few months will be difficult to make heads or tails of because the schools will be closed for summer break. That means childcare issues will remain at the top of the list of reasons people do not return to work. The summer months could be great for employment figures, or they could be awful. Once September comes and the schools can restart classes, childcare is solved for a great many people, and a jobs boom this fall ought to follow.

At the same time, it is vital that policymakers don't screw this up. There is some chatter, particularly among equity investors and traders, that inflation is going to destroy everything. They always say that. The truth is that the current inflation rate is the highest it has been since 2008. That is a statistic worth considering. In both 2007-8 and 2020, the US economy crashed. In the first instance, it was through incompetence and foolishness in the credit markets. In the latter, it was caused by the economic hibernation. After such artificial declines in economic activity, one is beginning from a low base, and any boost to inflation is the result of the ship righting itself.

Nevertheless, many have the view that 3-6% inflation will be the end of civilization as it exists. These folks have grown far too used to interest rates at 0%, where they have been since 2008. If the cost of borrowing money is zero, there is simply too much money sitting around as unused capital. Inflation will increase interest rates and that money will be redeployed to more effective purposes. It is unlikely that the inflation that currently exists will persist past second quarter 2022. This is not a systemic issue as the inflation of the 1970s was. This is a moribund economy coming back to life.

Wall Street and the unions and the financial media are all happy about this size of increase. This journal is less content. If the May rate of 559,000 continues, returning to pre-pandemic levels of employment will take until June 2023. That is just getting back to even, not growing beyond where the nation was.

Therefore, the Biden administration's plans to invest a few trillion in infrastructure and childcare makes a great deal of sense. The nation needs to add a million or more jobs each and every month for the rest of the year. A great acceleration this fall will help, but there is also a cultural shift that the pandemic has forced on the economy. People have come to see that commuting to an office every day is a waste of time. Many workers can do what they do without leaving home. Many are unwilling to go back to a job that pays poverty wages.

The real challenge will be to figure out how to adjust policy to that new reality rather than using policy to try to go back to a normal that is no longer possible. This journal is uncertain if the leadership of the nation are capable of that much imagination.

© Copyright 2021 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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