What Recession?

5 August 2022


Cogito Ergo Non Serviam

US Economy Added 528,000 Jobs in July


The Non-Farm Payrolls for July have come out, what the US government calls the jobs report, and the numbers have vastly exceeded expectations. Last month, the US economy created 528,000 jobs. The unemployment rate dipped to 3.5%. The experts polled by Reuters expected something in the range of 75,000 to 325,000 jobs added, with and expected unemployment rate steady at 3.6%. In addition, the numbers for June were revised up by 26,000 and May upwards by 2,000. There are now more people employed in the US than there were before the Covid pandemic shattered the global economy. There are 1.8 jobs available for every unemployed worker.

The Bureau of Labor Statistics reported, "In July, average hourly earnings for all employees on private nonfarm payrolls rose by 15 cents, or 0.5 percent, to $32.27. Over the past 12 months, average hourly earnings have increased by 5.2 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees rose by 11 cents, or 0.4 percent, to $27.57 . . . .

"In July, the average workweek for all employees on private nonfarm payrolls was 34.6 hours for the fifth month in a row. In manufacturing, the average workweek for all employees held at 40.4 hours, and overtime increased by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls remained unchanged at 34.0 hours."

All of this points to a tight and booming labor market. Most importantly, the minimum-wage jobs available are going unfilled. This will ensure that wages continue to rise despite the best efforts of management to return to January 2020. It will also continue despite inevitable interest rate increases the Fed will impose.

In all likelihood, the Fed will continue to hike rates until the jobs reports start showing limp results, say around 100,000. This is the standard approach of central bankers. It is also probably wrong. By the time the jobs report shows the softness the Fed is after, the economy will be in a recession. This is a hold-over from the 1970s when inflation was the nightmare of just about everyone engaged in the economy. If the last thirty years (especially in Japan) have taught the world anything, it is that a shrinking economy does much more harm than inflation in the high single figures. Generals fight the last war, but central bankers fight the war before the last.

While this journal accepts that a Fed Funds rate of 3-4% is probably desirable for long-term structural reasons, the Fed will overshoot that mark in order to tame inflation. Yet, inflation is already showing signs of abating. Prices for several key commodities are already declining. Gasoline prices, for example, are down for 51 days in a row.

Moreover, the reasons for the current bout of inflation have little to do with the amount of credit available, which is what interest rates affect. Making it more expensive to borrow money will not have much impact if the Chinese government quarantines a city that produces computer chips. Those chips will not get made, and the price for chips that do get made will rise because of scarcity. That will be the case if interest rates are at 0% or 100%. The reason for the scarcity is a political response to a biological problem and must the attacked at that level. The best anti-inflation policy would be if the People\\'s Republic of China abandoned its zero-Covid policy and started buying western vaccines that work much better than the local versions.

The trouble is that economists tend to look for economic solutions. Karl Marx notwithstanding, not everything is about economics.

© Copyright 2022 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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