Cogito Ergo Non Serviam
US Economy Added 142,000 Jobs in August
The United States created only 142,000 jobs in August 2024. Unemployment ticked down to 4.2% while the participation rate stayed stable at 62.7%. The reason for the lower unemployment number appears to be population growth and seasonal adjustments. The Bureau of Labor Statistics also reported that it revised the numbers for June and July, 61,000 fewer jobs in the former and 25,000 fewer in the latter. The Federal Reserve has had the labor market in its sights since its cycle of rate increases began. Finally, they seem to be content. The world is expecting a reduction in the Fed Funds rate week after next. It will be too late.
The Fed last raised rates in July of 2023. The last increase did not run its course until some time in May at the earliest. The softening of the job market reached the point then when job increases were below the average of the previous 12 months. In other words, the last rate increase was responsible for the last leg of the decline. The Fed will have waited almost 5 months after this to adjust the steering wheel by cutting rates.
If there is a cut on September 18, it will not cycle all the way through the economy until at least June 2025. That means a sluggishness over the next few quarters that could become a recession with some ease. A recession is defined as two consecutive quarters of a shrinking economy. One does not quite yet expect that. Some variables like the US election and the winter fuel bills are hard to predict. Nevertheless, a period of weak growth, sometimes called a growth recession, is almost inevitable – an it was unnecessary.
The Fed, and all other central banks, spends far too much time worrying about protecting its credibility in the financial market and not enough doing the right thing for the economy. They raised rates too high and held them there too long. They did so because they believed it was necessary for the markets to take them seriously. While perhaps not as important as the market, this journal does not believe the Fed has any credibility at all. It is too busy pleasing Wall Street to help Main Street, And why? Because they are all bankers and financiers. They have a narrow world view. It cannot be helped as that is how humans are. That does not change the fact they get it wrong frequently.
Suppose the economy were an aircraft and the Fed its pilot. The job of the pilot is to land the plane safely. So the pilot begins a descent from 10,000 meters and it reaches 9,000. The plane has yet to land, so the pilot increases the rate of descent. At 8,000, the plane still has not landed, so it increased the rate of descent even more. At about 2,000 meters, the pilot realizes that the plane is going down too fast. He suddenly pulls up, and some passengers get hurt due to the sudden change. Had the glide started between 10,000 and 9,000 meters been maintained, the plane would be able to land easily and safely.
Why does the Fed not do it that way? Because the money managers are a panicky lot of old ladies. They want immediate results, and when they do not get them, they whine to the government. The Fed likes its independence, and so, it does nothing to offend. It does what it wants but it lets the financial markets dictate the speed.
The Fed has the wrong parameters. It is worried about inflation and maybe unemployment. It should not. It should worry about increasing the real family median income. If it takes higher rates to get that done, rates should rise. If it takes lower rates, rates should fall. And if inflation, unemployment or any other factors get out of whack, they should only be addressed with the real increasing median income mandate in mind.
Who knows? While one is wishing, one might want a Congress that could engages in fiscal policy rather than having tax cuts carved in stone.
© Copyright 2024 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
|
|
|
