The WSJ says the Fed has to figure out whether inflation is around the corner. Allegedly, the wrong choice could cripple the economy.
Please consider The Fed’s Biggest Dilemma: Is the Booming Job Market a Problem?
No question looms larger for Federal Reserve Chairman Jerome Powell than this: How low can the U.S. unemployment rate safely go?
Only twice in the past half-century has unemployment fallen to its current rate of 3.8%—for a few years in the late 1960s and for one month in 2000.
The ’60s episode spurred years of soaring inflation that would take a decade for policy makers to corral. The latter coincided with a technology bubble that, when it burst, caused the 2001 recession.
Confusing Trigger With Cause
The WSJ says the “wrong choice could trigger a recession.”
The Fed has already sewn the seeds of the next recession. One extra rate hike will not matter one bit. Bubbles eventually burst, so let’s not confuse an alleged trigger with a cause.
How Low Can Unemployment Go?
That’s a silly question. The Fed has so distorted the economy with cheap money for so long, that no one should even bother asking the question.
Whatever the “natural” unemployment rate is, neither the Fed nor anyone else can possibly divine the number. Powell at least understands that point. He said the natural rate of unemployment could be anywhere from 3.5% to 5%.
Hiring Intentions
Before we can even begin to address the question “Is the Booming Job Market a Problem?” we should first ask “Is the Jobs Market Booming?”
Danielle DiMartino Booth asks the right question and comes up with the right answer.
Booth asks: Strong Labor Market? Dig a Bit Deeper
She notes that hiring intentions this year are off by almost half compared with 2017.
Some of the best insights into the overwhelming demand for workers can be gleaned from the less-followed but rich data published monthly by Challenger, Gray & Christmas. The firm is best known for its data on layoffs, but its monthly hiring announcements provide great information on the bottlenecks in the labor force.
The big picture is stark. Hiring intentions this year are off by almost half compared with 2017, driven by a collapse in the demand for workers in Information Technology, Entertainment & Leisure, Telecommunications and Retail. What little demand there is can be seen in some of the industries that have the smallest pools of available workers such as Construction, Energy and Electronics.
As difficult as it is to imagine, big parts of the underlying economy have been slowing even as the industrial sector gets juiced by a weaker dollar, the worst year on record for natural disasters in 2017 and fears of a trade war erupting.
New vs Reposted Listings
One thing is certain: the gap between the new job postings and re-postings will be resolved as companies take steps to contain their labor costs. A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare. The likelier outcome entails the disruption of the illusion floating markets today.
Lagging Indicator
The only thing missing in Booth’s report (and I am sure she understands this quite well) is that jobs are a lagging indicator.
And don’t count on a warning either.
Even if the jobs market is booming, that fact in and of itself is a useless predictor of future activity!
Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail.
The fruits of overexpansion are sewn. The stock market and junk bond bubbles provide sufficient evidence. So let’s not fool ourselves as the WSJ did with its discussion of an alleged “dilemma”.
It’s too late to stop the upcoming recession and stock market collapse no matter what the Fed does or doesn’t do this year.
Mike “Mish” Shedlock
The “white” part of your comment is not correct. There are many, many Chinese, East Indians, Pakistani’s and others working at these top tech companies. At a much, much higher % then their overall % of the USA population.
How Armstrong gets from “the DOL Rule will make it harder to give and get investment advice” to “the government is going to take over 401Ks” is a bit of a head-scratcher.
That is not exactly true. There are many countries where pension tax revenues are invested in government securities. For example, the National Insurance Fund in the UK.
“The jobless rate has fallen below the level economists estimate is sustainable over the long run.”
There is no level that is sustainable over the long run. Unemployment rises and falls. 4.5% was not sustainable when Bush Jr. was President. A 6 year expansion was not sustainable. The expansion from the 1980 recession was not sustainable, nor was the unemployment rate, coming out of it. The economy went right back into recession.
Unfortunately, most pension and insurance funds in the US are required to keep at least 50% in treasuries. Govt should not constrain the fund managers, and Social Security should have been turned into a wealth fund along time ago, but then govt wouldn’t be able to exploit the wealth gap that they are making worse.
Pensions try to match the maturities of bonds to expected outflows, and are held to maturity, so they would not take a loss due to rising rates – other than the opportunity loss.
How can you say the “fix” for SS is to reduce the benefits/return? The ROI is already pathetic. The solution is to find the $trillions that the Pentagon claims to have “lost”, stop funding undeclared and unending wars, throw health care executives in jail for violating EXITISTING anti-trust laws (which has extorted trillions from Medicare and patients), eliminate redundant/useless govt agencies, and generally reduce the size of govt by at least 20%.
Norway is the exception to the rule because they recognized govt debt is not safe and they shifted from public to private investment –
The pensions in Australia, Japan, and most of the west are doomed because govt’s constantly consume more and they are running out of other people’s money to confiscate through taxes, fees, and civil asset forfeitures.
Granted, Japan will fall after Europe because most of their debt is held internally, but make no mistake, when rates rise the BOJ will also hemorrhage interest expense.
When demand for US treasuries fall with the confidence in govt, don’t be surprised when you are forced to buy treasuries in your 401K to fund govt pensions –
{{{I just spoke to a technical recruiter manager friend who said that his 30 employees are (still) super busy, working on something like 200 open reqs in the Portland area. Developer wages are insane here, too — one reason I only hire entry level anymore: with just 2 or 3 years of experience, a developer thinks he’s worth $100K.}}}
As long as they are UNDER age 30 and either White, Indian or Asian. Age discrimination in this field and space is HUGE as well as racism & lookism — everyone at Facebook & Google LOOKS the same — white, young, attractive and UNDER age 30
“Rising interest rates do not help these funds.” Where is your proof? Pension funds had far better returns when interest rates were higher. In the current low interest rate environment, many pension funds have become severely underfunded.
And if only someone could train Africans walking behind a plow ox dragging a wooden plow, how to drive a modern harvester, Africa would be wealthy too……..
Except…. Tah, dah…. African don’t have harvesters. Nor roads on which to transport them to farms. Nor trucks to fill those roads. Nor the tools with which to fix them when they break. And, specifically BECAUSE of the latter, nor the skills to do so……
In individual cases, teaching someone more “skills” is no doubt a good thing. At the margin, you’re certainly helping someone by doing so. But there are very good reasons why economics is focused on capital accumulation as the road to wealth building. Not “skills” training in the abstract.
Give an African a harvester, and he’ll quickly figure out how to operate it. It is a skill he’ll have to learn, so it’s not like there’s zero benefit from teaching someone “skills.” But lack of “skill” to operate first world machinery, is not the bottleneck that’s holding African labor productivity back. If it was, it would be a fix so easy even Trump could do it. Instead, as always, the limiting ingredient is capital availability. And capital can ONLY be accumulated by (economic, not frou-frou, feel-good, marketing-speak) saving: Consuming less than what one produces. So, it’s invariably a slow, arduous, process. Which is certainly not Trump’s long suite.
US, British, Mediterranean….. labor productivity, as compared to benchmark German and Japanese one, differs from African one only in scale, not kind. And the way to “fix” the discrepancy is no different here: Stop doing anything that discourages capital formation. Even indirectly and relatively, like promoting something other than capital formation: If ambitious people can make a killing chasing ambulances and squabbling over who owns the “rights” to free money being printed up, they’ll do that instead of laboriously spending their life trying to build a better tool chest, as the latter is hard, while the former is any dilettante’s wet dream. Including Trump’s.
That last “Lagging Indicator” chart seems to say both, “A recession is when unemployment rises.” and “Unemployment rises in a recession.” Given that “recession” timing is often back-dated, I’m trying to find a reason why “recession” and “rising unemployment” are not synonyms.
Which, interesting thought: Maybe charts should be marked with recessions as they were considered recessions at the time of the recession, not as they were considered recessions by Monday morning quarterbacks.
Low rates have killed pensions, just as it has with savers. Having to continually roll over maturing bonds at low rates exasserbates the problem for pension funds that needs 7-8% to meet obligations. If rates are higher, pensions will also stop chasing higher yields in emerging markets, which are going to be hammered as the dollar rises. Granted, higher rates will blow up budgets as interest expense rises, but that is a problem for another day. As we are seeing with the desperate measures in IL, the pension crisis is forcing govt’s to raise economy-killing taxes now. This will be the next source of civil unrest – pensioners vs. tax payers.
Sorry, I missed your explanation.
so true
On the ‘collapse’ in demand for IT workers, could it be due to significantly lower number of H1-B visas? As far as I can tell, college grads in the software field are in hot demand.
That drop in hiring for “Computers”, from 110K in start of 2017 to 4K in start of 2018, is so stark it sounds like a misprint. Would like to know some details there. It doesn’t match my local picture of the developer scene. I just spoke to a technical recruiter manager friend who said that his 30 employees are (still) super busy, working on something like 200 open reqs in the Portland area. Developer wages are insane here, too — one reason I only hire entry level anymore: with just 2 or 3 years of experience, a developer thinks he’s worth $100K.
Things are going gang busters in the greater Boston and NYC area. Tech, life sciences especially are doing great
With the economy growing at less than 2% for the last nine years, when and how did the economy “over expand”? Yes, companies borrowed shitloads of money, but mostly they bought back stock and did not invest in expansion.
“Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail.”
Once again, you are looking at the US in isolation. Stocks have not been rising because of our great economy. It’s primarily due to capital flows looking for a safer haven, and with bonds yielding next to nothing, and negative in the EU, stocks are the only choice for the big money. The Fed is not raising rates because the economy is too hot. They are raising rates to postpone the pension crisis, and they will continue to raise rates to prevent having “perpetual bubble blower” on their gravestone. As the EU implodes, stocks and the dollar will continue to rise no matter what the Fed does, and until another emergency Plaza Accord type of meeting stops the rise of the dollar and resets the system.
After 10 years of QE in the US and Europe, and 25 yrs in Japan, I think the evidence is clear – the Fed is impotent against the Invisible Hand. If there is no confidence to lend or borrow, how exactly does the printed money get into the economy? As you are aware, the only thing the low rates have provided is justification to replace workers with robots, and reduced pension funding. The bubble is in govt bonds, not stocks.
But what does Trump think? He seems to have an opinion on just about everything. Ask him to tweet us his viewpoint.